Notice of Assumption or Termination of Transfer Agent Services

SUMMARY: 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 December 8,

1994. Section 240.17Ad-16 is effective on February 6, 1995.

FOR FURTHER INFORMATION CONTACT:

Ester Saverson, Jr., Special Counsel, at 202/942-4187, Division of

Market Regulation, Securities and Exchange Commission, 450 Fifth

Street, NW., Washington, DC 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.

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 case.

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\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 240.14Ad-7.

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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 address.

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\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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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.

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\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.

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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.

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\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, NW., Washington, DC 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

the 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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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.

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.

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\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.

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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.

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\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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The depositories hold securities certificates in the nominee name

is 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 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\

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\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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First Chicago also believe 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 all agents and depositories.

The Commission believes that the need for timely and accurate

information by securities depositories, depository participants, and

their customers in 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 notice is

received on a regular basis, the Commission would encourage the

depositories to consider establishing an electronic notification system

through existing depository communications systems.

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\10\DTC letter, supra note 5.

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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

termination 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.

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\11\Mellon letter, supra note 5.

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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 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\

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\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.

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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, a registered transfer agent assuming or ceasing responsibility

for municipal securities or government securities would be required to

comply with Rule 17Ad-16.\15\

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\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 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.

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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

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, issuers or issues handled,

and the CUSIP number for each issue.

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\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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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.

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\20\``Secure communication'' includes telegraph, overnight mail,

facsimile, or any other form of secure communication.

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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.

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\21\See DTC letter, supra note 5.

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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

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.

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\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).

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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 the Rule 17Ad-16. No commenters addressed

proposed Rule 17 Ad-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.

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\

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\23\DTC, Annual Report 1993 at 5.

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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\

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\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 unnecessary at this time.

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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 Sec. 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.

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\26\5 U.S.C. 553.

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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 amends 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

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:

Athority: 15 U.S.C. 77s, 78d-1, 78d-2, 78w, 78ll(d), 79t, 77sss,

80a-37, 80b-11, unless otherwise noted.

* * * * *

2. Section 200.30-3 is amended by adding paragraph (a)(56) to read

as follows:

Sec. 200.30-3 Delegation of authority to Director of Division of

Market Regulation.

* * * * *

(a) ***

(56) Pursuant to Sec. 270.17Ad-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:

Sec. 270.17Ad-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 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 notice 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 of 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.

Dated: December 1, 1994.

By the Commission.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-30125 Filed 12-7-94; 8:45 am]

BILLING CODE 8010-01-P-M