# Lost Securityholders

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URL: https://www.frixlaw.com/law-library/documents/fr%3A96-21892

## Record

- **Collection:** Federal Register
- **Document type:** Proposed Rule
- **Published:** August 28, 1996
- **Citation:** 61 FR 44249

## Text

SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 232 and 240

[Release No. 34-37595; File No. S7-21-96]
RIN 3235-AG99

Lost Securityholders

AGENCY: Securities and Exchange Commission.

[[Page 44250]]

ACTION: Notice of Proposed Rulemaking and Request for Comments.

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SUMMARY: The Securities and Exchange Commission (``Commission'') is
publishing for comment proposed Rule 17Ad-17 and proposed Rule 17a-24
which are designed to address the problem of ``lost securityholders.''
Rule 17Ad-17 would require transfer agents to conduct searches in an
effort to locate lost securityholders. Rule 17a-24 would allow the
Commission to gather data related to lost securityholders and to
provide it to information distributors or others. The Commission also
is seeking comments on the extent to which further regulatory or
remedial steps are necessary, including whether the Commission should
operate a national database for lost securityholders.

DATES: Comments should be received on or before October 28, 1996.

ADDRESSES: Interested persons should submit three copies of their
written data, views, and opinions to Jonathan G. Katz, Secretary,
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington
D.C. 20549. Comments also may be submitted electronically at the
following E-mail address: [email protected]. All comment letters
should refer to File No. S7-21-96; this file number should be included
on the subject line if E-mail is used. Comment letters will be
available for public inspection and copying at the Commission's public
reference room, 450 Fifth St., N.W., Washington D.C. 20549.
Electronically submitted comment letters will be posted on the
Commission's Internet Web site (http://www.sec.gov).

FOR FURTHER INFORMATION CONTACT: Jerry W. Carpenter, Assistant
Director; Christine Sibille, Senior Counsel; or Michele Bianco,
Attorney; at 202/942-4187, Office of Risk Management and Control, Mail
Stop 5-1, Division of Market Regulation, Securities and Exchange
Commission, Washington, D.C. 20549.

SUPPLEMENTARY INFORMATION:

I. Introduction and Summary

From time to time, issuers lose contact with some of their
securityholders (``lost securityholders''). Loss of contact may result
from a change in the securityholder's address or a transfer of
beneficial ownership (e.g., through inheritance). As a result, these
securityholders do not receive principal, dividend, or interest
distributions to which they are entitled, and their property is at risk
of being deemed abandoned under state escheat laws.1 At a point in
time established under the applicable escheat law, the custodians of
these assets must turn them over to the appropriate state unclaimed
property administrator. In some states, that can occur in as few as
three years after the custodian loses contact with the
securityholder.2 Transfer agents, as the primary custodians of the
records that determine the ownership of securities and the entitlement
to corporate distributions, can reduce significantly the number of lost
securityholders by maintaining accurate records and by promptly
initiating corrective measures when records no longer reflect the
current status of a securityholder.3
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\1\ See House Committee on Small Business, 103d Cong., 2nd
Sess., Report on Business Opportunities and Technology (1993);
Letter from Richard Breeden, Chairman, Commission, to Ron Wyden,
Chairman, Committee on Small Business, U.S. House of Representatives
(February 22, 1993); Letter from Arthur Levitt, Chairman,
Commission, to Ron Wyden, Chairman, Committee on Small Business,
U.S. House of Representatives (October 29, 1993).
\2\ In some states, an investor's failure to vote or to
communicate with the issuer during a period of five successive
years, even if no communication from the investor has been required,
can become the basis for constructive abandonment. See, e.g., Letter
from John K. Dalton, Associate Counsel, State of New York Office of
the State Comptroller, to the Division of Market Regulation
(``Division'') (December 12, 1994).
\3\ Other financial institutions, such as registered broker-
dealers, also may maintain records of securities ownership on behalf
of customers for which they hold assets. In such instances, the
transfer agent has recorded the financial institution as the owner
in its account records, and the financial institution's customer
account records will identify the beneficial owner of the
securities. The Commission understands that such financial
institutions have a lower incidence of lost securityholders. Letter
from Judith Poppalardo, Assistant General Counsel, Securities
Industry Association (``SIA''), to Division (June 7, 1996).
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Some transfer agents already take meaningful steps to prevent the
loss of contact with securityholders and to reestablish contact after
it has been lost. However, the Commission is concerned that some
transfer agents may not be making sufficient use of currently available
technology to locate securityholders with whom contact has been lost.
To address this problem, the Commission is seeking comment on
several proposals. Proposed Rule 17Ad-17 would require that transfer
agents take certain minimum steps to locate the correct address of each
securityholder in their master securityholder files as well as require
them to take such additional steps as are reasonable. Transfer agents
would be required at a minimum to make two good faith attempts to
locate lost securityholders before turning assets over to an unclaimed
property administrator. These searches would be made at no cost to the
securityholder. The Commission believes that this requirement should
help reduce the number of lost securityholders and the escheatment of
investor assets.
The Commission preliminarily believes that imposing an affirmative
obligation on transfer agents to search for lost securityholders is in
the public interest and would enhance investor protection. The
Commission recognizes that regulatory obligations impose financial
burdens and that the costs of complying with proposed Rule 17Ad-17 may
fall upon transfer agents or indirectly on issuers. In proposing
specific requirements, the Commission has attempted to minimize
compliance costs. Also, decreasing the number of lost securityholders
should reduce the costs to transfer agents and issuers of complying
with state escheat laws.
The Commission also is proposing Rule 17a-24 to gather data related
to lost securityholders that would be available to information
distributors and others. Under this rule, the Commission would require
entities that hold assets for investors, such as transfer agents and
broker-dealers, to file electronically with the Commission certain lost
securityholder information. The Commission would make such data
available to private entities which could establish information
services that could be accessed by investors to determine if they have
been reported as lost.
As discussed more fully below, the Commission is also soliciting
comment on the concept of a national database of lost securityholders
to be operated by the Commission in order to facilitate the ability of
lost securityholders to reestablish contact with issuers and transfer
agents.
In summary, the proposals would:
Establish a definition of lost securityholder.
Require transfer agents to search for lost securityholders
at no cost to the securityholders using at least one information
database.
Require certain entities that hold assets for
securityholders to file with the Commission certain information
pertaining to lost securityholders.
Solicit comment on the establishment of a national lost
securityholder database to be maintained by the Commission.

II. Transfer Agent Responsibilities to Maintain Accurate Records and to
Locate Lost Securityholders

A. Maintenance of Master Securityholder Files

Rule 17Ad-10 under the Securities Exchange Act of 1934 (``Exchange
Act'') 4 requires every recordkeeping

[[Page 44251]]

transfer agent 5 to maintain and keep current an accurate master
securityholder file 6 that contains the minimum appropriate
``certificate detail'' for all securities transferred, purchased,
redeemed, or issued and to which the transfer agent must post debits
and credits. Certificate detail is defined by Rule 17Ad-9(a) to include
information such as the securityholder's registration (including name),
address of the securityholder, the size of the position, and other
information used to identify the securities and the
securityholder.7
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\4\ 17 CFR 240.17Ad-10.
\5\ 17 CFR 240.17Ad-9(h) defines recordkeeping transfer agent as
the registered transfer agent that maintains and updates the master
securityholder file.
\6\ 17 CFR 240.17Ad-10(b) requires every recordkeeping transfer
agent to maintain and keep current an accurate master securityholder
file and subsidiary files. If there is a record difference, the
master securityholder file and subsidiary files must accurately
represent all relevant debits and credits until the record
difference is resolved. The recordkeeping transfer agent must
exercise diligent and continuous attention to resolve all record
differences. See also 17 CFR 240.17Ad-9(b).
\7\ 17 CFR 240.17Ad-9(a).
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The Commission believes that an accurate master securityholder file
is one of the most basic steps in addressing the lost securityholder
problem. Therefore, the Commission believes that recording of patently
inadequate or inaccurate certificate detail to the master
securityholder files is inconsistent with Rule 17Ad-10. For example,
recording an address of ``New York, New York'' without a street address
will almost certainly result in the return by the U.S. Postal Service
as undeliverable of all correspondence sent to such address. Thus, in
most cases a transfer agent should not post to the master
securityholder files items it receives for transfer that contain a
patently incorrect address or items that do not contain a complete
address 8 and should return such transfer request to the presenter
without effecting the transfer.9
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\8\ Transfer agents should use their experience in their reviews
for adequacy of addresses contained in items submitted for transfer.
For example, the absence of a street address in some rural areas and
small towns may not render an address incomplete or inadequate.
Accordingly, posting such certificate detail may not violate Rule
17Ad-10.
\9\ The Commission understands that there are situations where
rejecting a transfer request because of an incomplete address may
result in financial harm to the investor (e.g., when a transfer
request is received near or on a record date or in connection with a
tender or an exchange offer). Letter from Michael Foley, President,
The Securities Transfer Association (``STA''), to the Division (May
26, 1994). In such situations, the Commission believes that a
transfer agent should have the flexibility to follow the general
practice of accepting the transfer request and using the address of
the presenting financial intermediary in care of the securityholder
before seeking an accurate address.
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B. Current Transfer Agent Practices Regarding Lost Securityholders

Currently, most transfer agents rely on the standards contained in
Rule 14a-3(e)(2) under the Exchange Act to determine when to code as
``lost'' the accounts of securityholders whose correspondence has been
returned as ``undeliverable'' because of an incorrect or insufficient
address.10 That rule provides that unless otherwise required by
state law, the obligation to mail an annual report or proxy statement
to a securityholder is suspended if (1) an annual report and a proxy
statement for two consecutive annual meetings, or (2) all payments of
dividends or interest on securities sent by first class mail (of which
there has been at least two payments) during a twelve month period
which have been mailed to such securityholder's address have been
returned as undeliverable.
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\10\ 17 CFR 240.14a-3(e)(2).
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Generally, the first time a distribution check is returned as
undeliverable, a transfer agent will place the returned check in
another specially marked (e.g., color-coded) envelope and will remail
the distribution check to the registered owner at the same address
(``remailing procedure'').11 If the remailing is returned, the
issuer or the transfer agent will hold the check until the next
distribution payment. This remailing procedure may be repeated if the
next distribution payment or other issuer correspondence is returned as
undeliverable. If two consecutive distribution payment mailings are
returned as undeliverable, the transfer agent will code the
securityholder's account as undeliverable (i.e., the securityholder is
``lost'') and will hold any further distributions and communications to
the securityholder. Some transfer agents also conduct a mass mailing at
the end of each year to all securityholders whose accounts they deem to
be undeliverable.
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\11\ Transfer agents use this second mailing to test the
possibility that the first mailing did not reach the intended
recipient because of an error by the postal service. The second
mailing also can be used to generate a better or current address by
requesting an address correction from the postal service. Letter
from Michael Foley, President, STA, to the Division (May 26, 1994).
Transfer agents have estimated the success rate for this remailing
from less than 10% to 50%. See, e.g., Letters from Charles Rossi,
Boston EquiServe, to the Division (February 26, 1996) and from
Anthony J. Calcagni, Harris Trust and Savings Bank, to the Division
(February 23, 1996).
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After two consecutive mailings are returned as undeliverable, some
transfer agents conduct searches for the securityholder by using
information databases.12 In addition to information databases,
transfer agents also use various other methods in their attempts to
obtain the current addresses of lost securityholders.13 However,
not all transfer agents take such actions to search for lost
securityholders.
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\12\ Many transfer agents and corporate issuers that conduct the
transfer functions for their own securities currently use vendor-
maintained, computer databases to assist them in searching for lost
securityholders. Letters from Michael Foley, President, STA, to the
Division (May 26, 1994), and Anthony F. Fireman, President,
Corporate Transfer Agents Association, Inc. (``CTAA''), to the
Division (April 25, 1994). These searches are usually based on name,
address, or social security number. Many professional transfer
agents (e.g., transfer agents that perform transfer functions for
issuers for a fee) also have the capability to perform searches by
taxpayer identification number for issuers that are willing to pay
an additional fee. In addition to using vendor-maintained
information databases (e.g., credit bureaus), some transfer agents
and corporate issuers employ the services of the Social Security
Administration (``SSA'') or the Internal Revenue Service (``IRS'')
in an attempt to contact the lost securityholder.
\13\ Among others, these methods include using CD-ROM technology
for searching telephone directories, and inquiring at the bank where
previously endorsed distribution checks were presented to learn if
the bank has a current address. See also, Guttman, Modern Securities
Transfers, para. 16.04 (3rd ed. 1987), noting that other methods
include, but are not limited to, (i) checking all past
correspondence with the registered owner, (ii) checking the source
of transfer instructions for a proper address (for example, the
broker through whom the securities had been acquired by the
registered owner), and (iii) contacting the occupant of the premises
of the last-known address for a forwarding address.
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C. Proposed Rule 17Ad-17

The Commission is proposing Rule 17Ad-17 under the Exchange Act to
require transfer agents to conduct searches for securityholders once
the transfer agents have determined that a securityholder is lost. The
proposed rule would require each recordkeeping transfer agent to
exercise reasonable care to locate the correct address of lost
securityholders, and would establish minimum search
requirements.14 However, the rule would not impose on transfer
agents an absolute obligation actually to locate each lost
securityholder.
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\14\ See supra note 5 for a definition of recordkeeping transfer
agent.
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1. Definition of Lost Securityholder
For purposes of Rule 17Ad-17, a securityholder will be classified
as a lost securityholder when two items of correspondence,15 such
as distribution payments, that were sent by first class mail at least
three months apart, have been returned as undeliverable. Because at
times transfer agents receive change of address notifications soon
after the mailing and subsequent return of a distribution payment, a
three month period will be required to have elapsed between the two
correspondences. If and when a transfer agent receives a

[[Page 44252]]

new address for a lost securityholder, either directly from the
securityholder or through the transfer agent's efforts, the
securityholder will no longer be classified as lost.16
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\15\ The remailing of the same correspondence does not
constitute a second item of correspondence.
\16\ While not specifically required by the proposed rule, the
Commission encourages transfer agents to take steps that may prevent
securityholders from becoming ``lost.'' In particular, the remailing
procedure described in the text above and the procedures described
in footnote 13 appear to be effective methods of correcting
misdeliveries of mail and other delivery problems. Such early
measures may prove especially beneficial because the ``trail'' of
the securityholder may still be fresh.
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The Commission requests comments on whether the proposed standards
for classifying a lost securityholder is appropriate or whether a
different standard should be employed. For example, is the three month
period between the mailing of two correspondences an appropriate time
period?
2. Transfer Agents' Search Requirements
Rule 17Ad-17 would require every recordkeeping transfer agent whose
master securityholder file includes accounts of lost securityholders to
search an information database for such securityholders' current
address. The transfer agent's initial search for the securityholder
must be based on either name, if reasonably likely to locate the lost
securityholder, or taxpayer identification number (typically an
individual's social security number) using at least one information
database. The search must be conducted within three months of the
securityholder being classified as lost. If the lost securityholder is
not found on the initial search, the transfer agent also must conduct a
second search for the lost securityholder between one year and eighteen
months after the initial search. This search is intended to identify
address changes that were added to the database after the time of the
earlier search. The transfer agent must conduct these searches without
charge to the lost securityholder.
The Commission understands that database searches generally are
considered a cost-effective way in which to locate lost
securityholders. The Commission requests comment with respect to the
potential costs of proposed Rule 17Ad-17 and its potential
effectiveness in addressing the lost securityholder issue. The
Commission requests commenters to submit specific data on costs
involved in utilizing various vendors' information databases and costs
involved in using other methods in an effort to locate lost
securityholders. The Commission also requests comment on whether there
are other entities that maintain ownership records such as broker-
dealers, that should also have search requirements.17
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\17\ The Commission understands that many broker-dealers
currently conduct searches for missing customers. Letter from Judith
Poppalardo, Assistant General Counsel, SIA, to Division (June 7,
1996).
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In conducting an information database search, should a transfer
agent have the option as proposed of conducting a search using either
the names or taxpayer identification numbers of the lost
securityholders or should the transfer agent be required to conduct a
search using taxpayer identification numbers? The Commission
understands that conducting searches using the taxpayer identification
numbers may be more costly than a search using lost securityholders'
names, but searches using taxpayer identification numbers may be more
effective in locating lost securityholders.
Should the requirement to search for lost securityholders apply
only where the transfer agent is holding assets over some de minimis
amount? A de minimis threshold would avoid a situation where a transfer
agent would be required to expend funds in excess of the amount at risk
of escheating.
The Commission also is requesting comment on the time frames within
which a search must be made. The purpose of the three month time frame
is to require a transfer agent to search within a short period of time
after the securityholder becomes lost, because generally chances of
locating a lost securityholder are better the sooner a search is
initiated. However, if the search is conducted too soon, there may not
be an opportunity for the information databases to be updated with the
securityholder's new address. Further, the three month period will
permit transfer agents to conduct searches on a quarterly basis, which
may be more cost-effective. The period between the first and the second
search, one year to eighteen months, is intended to provide sufficient
time for a lost securityholder's new address to appear in an
information database subsequent to the first search.
Comments also are requested on whether the rule should include (1)
a requirement that transfer agents periodically assess the
effectiveness and appropriateness of the search procedures and
technology they employ, and/or (2) a requirement that transfer agents'
search procedures meet a performance-based standard based on success in
locating lost securityholders.
3. Definition of Information Database
For purposes of Rule 17Ad-17, an information database would be
defined as any automated database service that (1) contains addresses
of United States residents including addresses in the geographic area
in which the lost securityholder's last known address is located, (2)
covers a reasonably broad geographic area, (3) is indexed by the search
criterion used by the transfer agent (e.g., name or taxpayer
identification number), and (4) is updated at least four times a
year.18 The Commission requests comments on these criteria.
Comment is also sought on whether instead of setting forth specific
criteria for an acceptable database, the rule should require transfer
agents to use technology reasonably designed to locate a lost
securityholder.
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\18\ Some examples of vendors of information databases that
satisfy these criteria are credit bureaus, the SSA, and the IRS.
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4. Use of Professional Search Firms to Meet Search Requirements
Currently, some transfer agents rely on professional search firms
that charge lost securityholders a fee for locating the lost
securityholders' assets instead of using database services.19
Under proposed Rule 17Ad-17, the use of such firms as the method of
locating a lost securityholder would satisfy the transfer agent's
search obligation only if the securityholder would not be charged a fee
as the result of a successful search. Therefore, the use of a
professional search firm that charges the securityholder a fee for
recovering his or her assets would be permissible only after the
transfer agent has conducted the required two information database
searches described above.
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\19\ The CTAA stated that some of its members utilize
professional search firms which generally have extensive search
methods. The CTAA believes that the decision to use a professional
search firm should be an independent one made by the transfer agent
or issuer taking into consideration potential cost to either the
issuer or the securityholder. Letter from Anthony F. Fireman,
President, CTAA, to the Division (April 25, 1994). The National
Association of Unclaimed Property Administrators (``NAUPA'') has
informed the Commission that transfer agents should use caution when
employing information vendors because many such vendors are also in
the business of contacting lost securityholders and charging them a
fee, which may be between 30% and 50% of the value of the
distributions, for information about the distributions. While NAUPA
supports the use of all available methods of facilitating transfer
agents' searches, it is concerned about any search effort that
causes a shareholder to lose a substantial portion of the value of
the property and believes that such firms should be used only as a
last resort and not as a routine method to find lost
securityholders. Letter from Dawn E. Rockey, Second Vice President,
NAUPA, to the Division (April 29, 1994).
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Comment is sought on the extent to which transfer agents currently
employ professional search firms and on any problems or concerns that
arise from their use. Specifically, the Commission

[[Page 44253]]

requests comment on whether the limitation contained in the proposed
rule, prohibiting charging the shareholder for use of such firms until
after a transfer agent has conducted the two prescribed searches using
an information database, is appropriate.
5. Verification of Shareholder Identity
Although a careful search is unlikely to result in an erroneous
match of a lost securityholder and the information obtained from an
information database, information databases are not 100% accurate.
Thus, in order to guard against delivery of distributions to an
incorrect recipient, the Commission strongly suggests that transfer
agents verify that the person at the newly obtained address is its lost
shareholder before disbursing securities or funds.20 Among other
methods, verification could consist of confirming the shareholder's
taxpayer identification number and former address.
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\20\ The STA notes that currently most transfer agents send a
search letter to the new address obtained from an information
database in order to obtain additional information to assure that
the shareholder and the new addressee are the same person. However,
for small money values, some transfer agents automatically update
their records and forward lost distributions to the address obtained
from the information database. The STA believes that transfer agents
should establish contact with the shareholder at the new address
before releasing distributions. Letter from Michael Foley,
President, STA, to the Division (May 26, 1994). The CTAA states that
many transfer agents and issuers currently require the person at the
new address to confirm the shareholder's taxpayer identification
number and former address before issuing a check for past dividend
or interest distributions. The CTAA also states that when an estate
is being probated, most transfer agents or issuers will issue the
check in the name of the deceased so that the personal
representative or trustee of the estate is required to use legal
documents to cash the check. Letter from Anthony F. Fireman,
President, CTAA, to the Division (April 25, 1994).
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6. Recordkeeping Requirements
Proposed Rule 17Ad-17 will require that all recordkeeping transfer
agents maintain records necessary to demonstrate their compliance with
the requirements of the rule. At a minimum, transfer agents should
document the date a securityholder was classified as lost and the date
a database search was conducted for such securityholder. The Commission
also is proposing an amendment to Rule 17Ad-7 under the Exchange Act to
require that transfer agents maintain the records required by the
proposed rule for a period of not less than three years with the first
year in an easily accessible place.

III. Collection of Lost Securityholder Data

A. Proposed Rule 17a-24--Background

As discussed further in Section IV below, the Commission has been
urged to support the establishment of a national lost securityholder
database. In the alternative, the Commission is proposing to facilitate
the gathering of data related to lost securityholders to provide access
to the information by information distributors or others, including
individuals.
The Commission proposes to collect information on lost
securityholders 21 from entities such as transfer agents and
broker-dealers that hold assets for investors, and to make such
information available to private entities which could establish
databases accessible by the public. For example, a distributor could
obtain this information from the Commission and charge a fee to persons
who inquire about whether they have been reported as lost. The inquirer
could then contact the reporting entity or otherwise take steps to
recover the property. The Commission requests comment as to whether it
would be economically feasible for communication vendors to develop a
lost securityholders database and to make the information available to
the general public at a reasonable cost.
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\21\ The rule would include a definition of the term lost
securityholder that is consistent with the definition under proposed
Rule 17Ad-17.
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B. Definition of Recordkeeper

The filing requirements under proposed Rule 17a-24 would apply to
any entity defined by that rule as a recordkeeper. The proposed rule
defines the term recordkeeper to mean (1) a member of a national
securities exchange, a registered broker or dealer, or a registered
municipal securities dealer which maintains records of securities
received, acquired, held, or carried by or on behalf of such entity for
the account of any securityholder, or (2) a recordkeeping transfer
agent. Exchange members and broker-dealers carry accounts for others,
which may include retail investors, institutional investors, or other
broker-dealers.22 Recordkeeping transfer agents maintain records
of ownership on behalf of issuers.
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\22\ Exchange members and broker-dealers which carry accounts
for others are frequently listed on the books of issuers, clearing
agencies, or financial intermediaries as the holder of a security.
These exchange members or broker-dealers know the identity of the
entity for which they hold the security.
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The Commission seeks comment concerning the scope of this
definition. Should any other entities, such as investment advisors, be
included within the definition of recordkeeper? Does the proposed
definition cover entities that should not be deemed recordkeepers
because they do not typically have lost securityholders?

C. Recordkeeper Filing Requirements

Proposed Rule 17a-24 will require each recordkeeper to file
electronically with the Commission on or before May 31 of each year
information on all lost securityholders contained in such
recordkeeper's records as of May 1 of such year.23 With the same
filing date for all filers, the Commission could easily compile all the
submissions into one file for downloading.
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\23\ The annual filing would include information on a lost
securityholder even if the securityholder was reported as lost in
the previous year's filing.
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The filing would include the identity of the reporting
recordkeeper, a contact name and telephone number at the recordkeeper,
and the period covered by the report. In an effort to protect
confidentiality, the report contents would consist solely of a list of
taxpayer identification numbers of lost securityholders contained in
the recordkeeper's records.24 No names, number of shares, or
dollar amounts would be provided.
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\24\ The Commission understands that some professional search
firms have databases that can identify an individual's name based on
a social security number.
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The Commission requests comment on the feasibility of the filing
requirement under the proposed rule. A private entity that wants to
establish a database would only need to download the information once a
year from the Commission. Is an annual filing sufficient? Should more
frequent submissions be required? Should filers submit such information
concerning all lost securityholders, securityholders who have been lost
for some specified time period, or lost securityholders after a
specific occurrence, such as after the two database searches required
under proposed Rule 17Ad-17 have been conducted? Should filers be
required to file information with the Commission indicating that a
securityholder has been found? If so, how soon after the securityholder
is found? In addition to the costs they currently incur in providing
information on lost property to state unclaimed property
administrators, what costs would filers incur in providing the
requested information to the Commission?
The Commission also requests comment on whether the privacy of lost
securityholders will be compromised by filers providing the required
taxpayer identification numbers.25 Would information other than
taxpayer

[[Page 44254]]

identification numbers provide greater privacy protection and still
accomplish the stated goals? For example, would the gathering of
specific information about a lost securityholder (e.g., the lost
securityholder's name, last known city and state) be an effective means
of addressing the problem while presenting fewer privacy concerns?
26 Are there any other steps that should be taken to protect
securityholders' privacy? Should information on the lost
securityholder's assets (e.g., the issues and the CUSIP numbers) be
included, and would the inclusion of such information serve any useful
function so as to override any privacy concerns?
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\25\ Supra note 24.
\26\ Listing lost shareholders by name may allow for greater
privacy because of the potential for multiple individuals to have
the same name while a social security number will identify one
specific individual.
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D. Method of Filing

The Commission believes that two methods of electronic filing are
feasible. First, recordkeepers could utilize the Commission's
Electronic Data Gathering Analysis and Retrieval System (``EDGAR'') to
submit their filings in accordance with current Commission
rules.27 The Commission is proposing the use of the EDGAR system
in an effort to employ available technology to facilitate the
objectives of the proposed rule. EDGAR filings generally are made
through a dial-up connection to the Commission's host equipment and
transmitted using Commission supplied, personal computer based software
called EDGARLink. Therefore, the cost to recordkeepers should be
limited to a long distance telephone call.
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\27\ 17 CFR 202.7(b). As set forth in part VIII below, the
Commission is proposing to amend 17 CFR 232.101, which specifies
mandated electronic submissions, to include filings under proposed
Rule 17a-24.
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In addition to built-in communications and data compression
capability, EDGARLink contains features which help EDGAR filers create
and prevalidate their submission prior to making a transmission. Use of
the EDGAR system also would enable the Commission to validate the
identity of the submitter, the type of submission, and whether the
filing meets certain minimal format requirements.
As an alternative to filing through the EDGAR system, filings could
be submitted to the Commission through the Internet.28 Under this
approach, the same document structure required for EDGAR could be used.
However, the filer would not receive validation of the filing, and
there would be no validation for header accuracy or format compliance.
The cost may be somewhat higher because entities would be required to
obtain access to the Internet either directly through a provider or
through use of a service which would file on their behalf.
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\28\ If this alternative is adopted it would be necessary to
amend 17 CFR 202.7 and 17 CFR 232.101 to reflect the use of the
Internet for these submissions.
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Comments are requested on whether the EDGAR system or the Internet
would be the better vehicle for the submission of such information.
Commenters are requested to provide specific alternative cost estimates
for compliance using both systems. Are there limits on the ability of
smaller transfer agents and broker-dealers to submit this information
due to their level of automation?

E. Dissemination of Information

The Commission anticipates that the information filed under
proposed Rule 17a-24 could be disseminated as part of the existing
EDGAR data dissemination stream. Alternatively, the Commission could
provide access to the data on its Internet Web site. On the Internet
Web site, any entity or individual could download the information
submitted to the Commission for whatever reason(s) it deemed
appropriate. The Commission requests comment on the costs and benefits
associated with this proposal. Does the release of this information to
any outside party create the possibility of fraud, and if so, is there
some method to eliminate this possibility? Alternatively, should the
Commission limit access to the information collected with respect to
lost securityholders? For example, should dissemination of the
information be limited to information vendors that agree to restrict
the use and protect the confidentiality of the information?

F. Proposed Recordkeeping Requirements

The proposed rule would require every recordkeeper to maintain such
records necessary to demonstrate compliance with the requirements set
forth in this rule. The proposed rule also would provide that such
records must be maintained for a period of not less than three years,
the first year in an easily accessible place. Comment is requested as
to the feasibility of this requirement.

IV. Commission Supported Database

As an alternative to the data collection proposed in Section III
above, it has been suggested that the Commission should directly
support the establishment of a national lost securityholder database
which would be analogous to the database used in the Commission's lost
and stolen securities program.29 Such a database would contain
information such as the names and/or taxpayer identification number of
lost securityholders. Information would be required to be submitted to
the database by entities that are required to make other filings with
the Commission (e.g., issuers, transfer agents, and broker-
dealers).30 All securities and funds of lost securityholders would
continue to be held by the issuers, transfer agents, or broker-dealers.
The database would be accessible by telephone or by computer linkage by
shareholders or any other interested party. A user fee (i.e., a small
charge for each inquiry) would be used to fund the operation of the
database. The register could be searched by using a securityholder's
name or taxpayer identification number and would reveal whether an
entity is holding securities or funds for the securityholder. However,
the register would not disclose the value of the assets being held.
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\29\ Letter from Robert N. Shamansky, Benesch, Friedlander,
Coplan & Aronoff, to the Division (May 16, 1994).
\30\ Specifically, the proposal suggests that an issuer,
transfer agent, or broker-dealer enroll each lost securityholder on
an expanded version of the register which is maintained for the
Commission by the Securities Information Center for information on
lost and stolen securities. Letter from Robert N. Shamansky (May 16,
1994).
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Alternatively, it has been suggested that the Commission could
directly maintain and operate a lost securityholder database utilizing
the Commission's Internet Web site. Similar to the above proposal,
transfer agents, issuers, and broker-dealers would be required to
submit information concerning lost securityholders to the Commission.
Individuals would have access to the database through the
Internet.31
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\31\ This proposal differs from the proposal discussed under
Section III above in terms of the level of Commission involvement in
developing and running the database. In addition, the Commission
might need to institute a small charge for each search to cover the
costs of development and operations. Furthermore, it might take
longer to implement this proposal due to the complexities of such a
database.
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Recently, the National Association of Unclaimed Property
Administrators (``NAUPA'') advised the Commission that it is in the
process of developing a national database of lost
securityholders.32 NAUPA indicated that most, if not all, of the
states that belong to the association will provide names and last known
addresses to its centralized database. The NAUPA database will be
accessible by any

[[Page 44255]]

person through the Internet for a nominal fee, which will be used to
maintain the database. NAUPA believes that a centralized database
managed by states is an effective way to return property to rightful
owners because states have considerable expertise in administering
unclaimed property programs and locating missing owners. However, the
Commission notes that NAUPA's database would not list a lost
securityholder until such securityholder's assets had escheated to a
state.
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\32\ Letter from Randall A. Ross, President, NAUPA, to Steven M.
H. Wallman, Commissioner, Commission (January 18, 1996). NAUPA
members represent fifty jurisdictions which have unclaimed property
laws.
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The Commission requests comment on the establishment of a national
lost securityholder database. Specifically, the Commission seeks
comment on whether such a database would be of significant benefit to
investors and the cost-effectiveness of such a database, particularly
in light of the potential impact of proposed Rule 17Ad-17. Comments
should also contrast the benefits of a national database with the data
collection concept proposed in Section III.
Commenters favoring a database should discuss, among other things,
(i) the entity best suited to administer the database, (ii) the
appropriate frequency of submission of information, (iii) the
allocation of costs to maintain and to operate the database, (iv)
methods of access to the database, and (v) the potential necessity for
and design of safeguards to prevent unauthorized access into the
database and to prevent fraud. In addition to the issues cited above,
the Commission is interested in obtaining comment with respect to
potential privacy concerns arising from the dissemination of financial
information via the Internet. The Commission also requests comment on
whether the NAUPA database or other available databases would be an
adequate mechanism to address the lost securityholder problem.33
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\33\ The Commission notes that in April of 1994, Indiana placed
all of its unclaimed property information on the Internet. Since
going on-line, Indiana has received approximately six additional
calls per week; however, professional search firms (i.e., entities
employed by corporate issuers to locate lost securityholders and
that charge lost securityholders a percentage of their assets for
such efforts) account for about sixty percent of the additional
calls. Very recently, Wyoming also placed its unclaimed property
information on the Internet.
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V. Initial Regulatory Flexibility Analysis

Section 603(a) 34 of the Administrative Procedure Act,35
as amended by the Regulatory Flexibility Act (the ``Flexibility Act'')
36 generally requires the Commission to undertake a Regulatory
Flexibility Act Analysis of all proposed rules or proposed rule
amendments to determine the impact of such rulemaking on ``small
entities.'' 37 Approximately 470 registered transfer agents
qualify as ``small entities'' for purposes of the Flexibility Act and
would be subject to the requirements of proposed Rules 17a-24 and 17Ad-
17. Of the approximately 650 registered broker-dealers that would be
classified as recordkeepers under proposed Rule 17a-24, approximately
85 are small entities.
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\34\ 5 U.S.C. 603(a).
\35\ 5 U.S.C. 551, et seq.
\36\ 17 Pub. L. No. 96-354 (September 19, 1980), 94 Stat. 1164,
reprinted in (1980) U.S. Code Cong. & Ad. News 1169.
\37\ Although section 601(b) of the Flexibility Act defines the
term ``small entity'' the statute permits agencies to formulate
their own definitions. The Commission published final definitions of
the term ``small business'' and ``small organization'' in Securities
Exchange Act Release No. 6380 (February 4, 1982), 47 FR 5215.
Section 240.0-10(h) defines a small transfer agent for purposes of
the Flexibility Act as follows:
For purposes of the Commission rulemaking in accordance with the
provisions of Chapter Six of the Administrative Procedure Act (5
U.S.C. 601 et seq.) and unless otherwise defined for purposes of a
particular rulemaking proceeding, the term ``small business'' or
``small organization'' shall . . .
(c) When used with reference to a broker or dealer, mean a
broker or dealer that:
(1) Had total capital (net worth plus subordinated liabilities)
of less than $500,000 on the date in the prior fiscal year as of
which its audited financial statements were prepared pursuant to
Sec. 240.17a-5(d) or, if not required to file such statements, a
broker or dealer that had total capital (net worth plus subordinated
liabilities) of less than $500,000 on the last business day of the
preceding fiscal year (or in the time that it has been in business,
if shorter); and
(2) Is not affiliated with any person (other than a natural
person) that is not a small business or small organization as
defined in this section; . . .
(h) When used with reference to a transfer agent, mean a
transfer agent that:
(1) Received less than 500 items for transfer and less than 500
items for processing during the preceding six months (or in the time
that it has been in business, if shorter);
(2) Maintained master shareholder files that in the aggregate
contained less than 1,000 shareholder accounts or was the named
transfer agent for less than 1,000 shareholder accounts at all times
during the preceding fiscal year (or in the time that it has been in
business, if shorter); and
(3) Is not affiliated with any person (other than a natural
person) that is not a small business or small organization under
this section.
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The Commission has prepared an Initial Regulatory Flexibility
Analysis (``IRFA'') pursuant to the requirements of the Flexibility
Act, regarding the proposed rules. The IRFA notes that the proposed
rules are intended to reduce the number of securityholders with whom
contact is lost and to address the associated problems of undeliverable
dividend and interest distributions by establishing standards for
transfer agents with respect to their obligation to conduct searches in
an effort to locate such securityholders and by facilitating the
collection of data related to lost securityholders to permit
information distributors or others the opportunity to establish
databases in whatever form is most cost efficient. Proposed Rule 17Ad-
17 establishes a single standard for all transfer agents regardless of
size and is not anticipated to have any significant economic impact on
small entities. Similarly, proposed Rule 17a-24 sets forth a uniform
filing requirement for all recordkeepers and is not anticipated to have
any significant economic impact on the small entities subject to the
rule.

A. Rule 17Ad-17

Some registered transfer agents will not incur significant
additional compliance costs because they currently use an information
database to search for lost securityholders. Thus, the proposed
requirements will have a practical effect only on transfer agents that
do not presently conduct searches using an information database. The
Commission estimates that even for such transfer agents, the cost of
compliance with proposed Rule 17Ad-17 will be small.38 In
addition, because a transfer agent's cost of compliance generally will
be based upon the quantity of lost securityholders it must attempt to
locate, small transfers agents should not, on average, bear
disproportionately high compliance costs. On average, compliance costs
should be roughly proportional to the number of securityholder records
maintained by the transfer agent. Some database vendors may charge
discounted rates for bulk searches, which could inure to the benefit of
larger transfer agents. However, such discounts are small, and thus
they should not disadvantage small transfer agents significantly.
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\38\ Based upon information supplied to the Commission by
transfer agents, vendors other than the SSA and the IRS typically
charge $.95 to $1.75 per account for lost securityholder searches.
The charge for searches conducted through the SSA and IRS using
securityholder social security or tax identification numbers is
$3.00 per account.
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The proposed rule will impose on transfer agents an additional
recordkeeping requirement. The requirement has been broadly drafted to
provide transfer agents with sufficient flexibility to minimize
recordkeeping costs. Specifically, proposed Rule 17Ad-17 will require
that all recordkeeping transfer agents maintain records necessary to
demonstrate their compliance with the rule's requirements. The
Commission also is proposing an amendment to Rule 17Ad-7 to require
that transfer agents maintain the records required by the proposed rule
for a period of not less than three

[[Page 44256]]

years, the first year in an easily accessible place.
The Commission considered various alternatives to the proposed rule
and found no alternatives consistent with the proposed rule's objective
and the Commission's statutory mandate.39 However, as set forth in
Section II.B. above, the Commission is seeking comment on alternative
search and reasonable care standards including (i) a requirement that
transfer agents use technology reasonably designed to locate a lost
securityholder instead of following specific guidelines as to what
constitutes an acceptable database, (ii) a requirement that transfer
agents periodically assess the effectiveness and appropriateness of the
search procedures and technology they employ, and/or (iii) a
requirement that transfer agents' satisfaction of their reasonable care
obligations be based upon their search procedures meeting a
performance-based standard based on success in locating lost
securityholders.
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\39\ Among other things, the Commission considered (i) the
establishment of a national database to which transfer agents would
be required to submit the names of all lost securityholders and (ii)
the effects of a database to be established by the National
Association of Unclaimed Property Administrators and populated with
information provided by the states that will include the names of
all persons whose property has escheated to the states. In both
instances, securityholders would need to take affirmative action to
discover the existence of their lost assets. Because many if not
most lost securityholders are unaware that they have property which
is considered undeliverable and escheatable, many would not realize
the importance of accessing the database. With respect to the first
alternative, many of the same costs would be incurred by transfer
agents because they would need to submit the names of the lost
securityholders to the national database rather than to a database
service. With respect to the second alternative, lost
securityholders would be deprived of their assets for a longer
period of time because their names would not be included in the
database until their assets had escheated to the state. However, the
Commission believes that it may be beneficial to pursue one of the
alternatives as an additional mechanism for locating lost
securityholders in conjunction with the proposed rule.
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B. Rule 17a-24

Proposed Rule 17a-24 will impose some additional compliance costs
upon all registered transfer agents and such registered broker-dealers
that fall within the definition of recordkeeper under the rule.
However, the Commission estimates that the cost of compliance with
proposed Rule 17a-24 will be small 40 and that the impact of the
rule upon recordkeepers' operations will be insignificant, regardless
of the recordkeepers' size.
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\40\ Establishing filing capability through EDGAR should not
require any expenditure by recordkeepers because the Commission
supplies the necessary software. Even if the small entity does not
currently have computer capability, the entity should be able to
find a service provider to file on its behalf for a small charge.
The Commission estimates an additional administrative cost of
approximately $50.00 per year for gathering and transmission of the
required information and approximately $10.00 per year for the cost
of a long distance telephone call.
---------------------------------------------------------------------------

The proposed rule will impose on registered transfer agents and
broker-dealers an additional recordkeeping requirement. The requirement
has been broadly drafted to provide transfer agents and broker-dealers
with sufficient flexibility to minimize recordkeeping costs.
Specifically, proposed Rule 17a-24 will require that all recordkeepers
under the proposed rule maintain records necessary to demonstrate their
compliance with the rule's requirements. The Commission also is
requiring that transfer agents maintain the records required by the
proposed rule for a period of not less than three years, the first year
in an easily accessible place.
The Commission considered various alternatives to the proposed rule
and preliminarily concluded that Rule 17a-24 best fulfilled the
proposed rule's objective and the Commission's statutory
mandate.41 However, as set forth in Section IV above, the
Commission is seeking comment on alternative information databases.
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\41\ As noted in footnote 37 above, the Commission considered
(i) the establishment of a national database to which transfer
agents would be required to submit the names of all lost
securityholders and (ii) the effects of a database to be established
by the National Association of Unclaimed Property Administrators and
populated with information provided by the states that will include
the names of all persons whose property has escheated to the states.
With respect to the first alternative, the Commission believes that
private vendors will be able to establish an effective database more
quickly than the Commission. As previously noted with respect to the
second alternative, lost securityholders would be deprived of their
assets for a longer period of time because their names would not be
included in the database until their assets had escheated to the
state.
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Commenters are encouraged to comment on any aspect of the analysis.
Such comments will be considered in the preparation of the Final
Regulatory Flexibility Analysis if the proposed rule is adopted. A copy
of the Analysis may be obtained by contacting Michele Bianco, Attorney,
Division of Market Regulation, U.S. Securities and Exchange Commission,
450 Fifth Street, NW., Washington, DC. 20549 at 202/942-4187.

VI. Paperwork Reduction Act

Certain provisions of proposed Rule 17Ad-17 and proposed Rule 17a-
24 may contain ``collection of information'' requirements within the
meaning of the Paperwork Reduction Act of 1995,42 and the
Commission has submitted them to the Office of Management and Budget
for review in accordance with 44 U.S.C. 3507(d). The titles for the
collection of information are: ``Proposed Rule 17Ad-17 (Transfer
Agents' Obligation to Search for Lost Securityholders)'' and ``Proposed
Rule 17a-24 (Data Collection for Private Databases).''
---------------------------------------------------------------------------

\42\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

The collection of information under proposed Rule 17Ad-17 and under
proposed Rule 17a-24 is intended to facilitate greater accuracy of
transfer agents' and broker-dealers' records. The collection of
information is necessary to enable recordkeeping transfer agents, as
the usual custodians of the records that determine the ownership of
securities and the entitlement to corporate distributions, and broker-
dealers, as holders of customer assets, to reduce significantly the
number of lost securityholders.
Under the proposed rules, transfer agents and broker-dealers may
use any appropriate method (e.g., through computerized or manual means)
to collect the names of the lost securityholders. Under proposed Rule
17Ad-17, information must be submitted by transfer agents to a database
service that is automated. Broker-dealers and transfer agents must
submit information to the Commission pursuant to proposed Rule 17a-24
through computerized means. The information required to be collected by
Rule 17Ad-17 and Rule 17a-24 (i.e., the taxpayer identification numbers
of lost securityholders) generally is already maintained by registered
transfer agents and broker-dealers. Therefore, the Commission
anticipates that the increased costs imposed by the rules will be
relatively minimal.\43\
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\43\ The cost of compliance with proposed Rule 17Ad-17 will
depend on the number of undeliverable accounts at each transfer
agent. Based upon the information received from transfer agents and
broker-dealers, the Commission believes there will be approximately
250,000 securityholders lost annually by all transfer agents. The
Commission estimates that approximately $3.00 will be spent per
account (comprised of approximately $1.00 for each of two searches
and approximately $1.00 in increased administrative costs for
downloading and forwarding the information). Therefore, the
estimated total annual cost for all transfer agents is $750,000.
The cost of compliance with proposed Rule 17a-24 should be a
minimal amount comprised of the cost of a long distance telephone
call and administrative costs. Transfer agents and broker-dealers
will be required to make an annual electronic filing. Filing
capability through EDGAR should not require any significant start-up
expense. The Commission estimates a long distance telephone charge
of approximately $10.00 per year and an additional administrative
cost of approximately $50.00 per year for downloading and forwarding
the information. Thus, at a total cost of approximately $60.00 per
year for each recordkeeper, the total annual cost for all
recordkeepers is estimated to be $129,000.
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The proposed rules also require that all recordkeeping transfer
agents (and all recordkeepers with respect to

[[Page 44257]]

proposed Rule 17a-24) maintain records necessary to demonstrate their
compliance with the rules' requirements. This recordkeeping requirement
is intended to provide transfer agents and broker-dealers with
sufficient flexibility to record and to maintain necessary information
in a manner that minimizes recordkeeping costs. The Commission will
require that transfer agents (and all recordkeepers with respect to
proposed Rule 17a-24) maintain the records required by the proposed
rules for a period of not less than three years, the first year in an
easily accessible place.
The Commission does not anticipate that the collection of
information will result in any significant burden to transfer agents or
broker-dealers. The likely respondents to the proposed collection of
information under proposed Rule 17Ad-17 will be the approximately 1500
registered transfer agents. The likely respondents to the proposed
collection of information under proposed Rule 17a-24 will be the
approximately 1500 transfer agents and approximately 650 of the
registered broker-dealers. The Commission estimates registered transfer
agents will devote approximately five hours per year \44\ to providing
information on lost securityholders to third party database vendors,
totalling 7,500 hours industry-wide. The Commission estimates
registered transfer agents and broker-dealers will devote approximately
two hours per year to make the required annual filing under proposed
Rule 17a-24, totalling 4300 hours industry-wide.\45\
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\44\ Transfer agents will need to submit this information to a
database a maximum of four times a year to insure that a search is
made within three months of a securityholder becoming lost. Each
download and forwarding of information should take approximately 1.2
hours.
\45\ Recordkeepers will submit information once a year. Each
download and transmission of information should take approximately
two hours.
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The collection of information under proposed Rule 17Ad-17 and
proposed Rule 17a-24 would be mandatory. Any information collected
pursuant to proposed Rule 17Ad-17 or proposed Rule 17a-24 would not be
confidential. Unless a valid Office of Management and Budget (``OMB``)
control number is displayed, for Commission may not sponsor or conduct
or require response to an information collection.
Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits
comments to--
(i) Evaluate whether the proposed collection of information is
necessary for the proper performance of the functions of the agency,
including whether the information shall have practical utility;
(ii) Evaluate the accuracy of the agency's estimate of the burden
of the proposed collection of information;
(iii) Enhance the quality, utility, and clarity of the information
to be collected; and
(iv) Minimize the burden of the collection of information on those
who are to respond, including through the use of automated collection
techniques or other forms of information technology.
Persons desiring to submit comments on the collection of
information requirements should direct them to the Desk Officer for the
Securities and Exchange Commission, Office of Information and
Regulatory Affairs, Office of Management and Budget, Washington, D.C.
20503, and should also send a copy of their comments directly to the
Commission. OMB is required to make a decision concerning the
collections of information between thirty and sixty days after
publication, so a comment to OMB is best assured of having its full
effect if OMB receives it within thirty days of publication.

VII. Burden on Competition

The Commission believes that the proposed rules will not have a
significant impact on transfer agent or broker-dealer competition.
Under proposed Rule 17Ad-17, all transfer agents will be subject to the
same specified minimum standard for reasonable care in attempting to
locate securityholders with whom contact has been lost. Similarly,
proposed Rule 17a-24 will require all transfer agents and broker-
dealers to submit the same information to the Commission.
The cost of compliance with proposed Rule 17Ad-17 is minimal.\46\
For many transfer agents that currently conduct securityholder searches
using an information database, proposed Rule 17Ad-17 will pose no
additional cost. Because a transfer agent's cost of compliance
generally is based upon the number of securityholders it must attempt
to locate, transfers agents regardless of their size and exercising
comparable care should incur comparable relative costs. On average,
compliance costs should be roughly proportional to the number of
securityholder records maintained by the transfer agent. In addition,
the extent of the effort required by a transfer agent to meet its
reasonable care obligations will require a balancing of cost against
the value of assets at issue. Accordingly, larger transfer agents which
are likely to have a greater proportion of accounts of considerable
value, often will be required to take more extensive measures and incur
greater costs in meeting their reasonable care obligations under
proposed Rule 17Ad-17.
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\46\ Supra note 43.
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With respect to proposed Rule 17a-24, the cost of compliance also
should be minimal.\47\ While the cost to each entity will be
approximately the same regardless of the entities' size (i.e., the
number of lost securityholders should not affect significantly the
amount of time it takes to collect the information and to transmit it
to the Commission), the total cost to each entity should be so limited
as to not raise competition concerns.
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\47\ Supra note 43.
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VIII. Text of the Amendments

List of Subjects

17 CFR Part 232

Reporting and recordkeeping requirements; Securities.

17 CFR Part 240

Transfer agents; Broker-dealers; Reporting and recordkeeping
requirements; Securities.

For the reasons set out in the preamble, the Commission proposes to
amend Chapter II of Title 17 of the Code of Federal Regulations as
follows:

PART 232--REGULATION S-T--GENERAL RULES AND REGULATIONS FOR
ELECTRONIC FILINGS

1. The authority citation for part 232 continues to read as
follows:

Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s(a), 77sss(a),
78c(b), 78l, 78m, 78n, 78o(d), 78w(a), 78ll(d), 79t(a), 80a-8, 80a-
29, 80a-30 and 80a-37.

2. By amending Sec. 232.101 paragraph (a)(1)(iv) by revising the
phrase ``format; and'' to read ``format;''.
3. By amending Sec. 232.101 paragraph (a)(1)(v) by revising the
phrase ``et seq.).'' to read ``et seq.); and''.
4. By adding paragraph (a)(1)(vi) to Sec. 232.101 to read as
follows:

Sec. 232.101 Mandated electronic submissions and exceptions.

(a) * * *
(1) * * *
(vi) Documents filed with the Commission pursuant to Sec. 240.17a-
24 of this chapter.
* * * * *
5. By amending Sec. 232.101(c)(11) by revising the phrase
``Regulation;'' to read ``Regulation, other than those filed with the
Commission pursuant to Sec. 240.17a-24 of this chapter;''

[[Page 44258]]

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934

6. 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.
* * * * *
7. By adding Sec. 240.17a-24 to read as follows:

Sec. 240.17a-24 Reports of Lost Securityholders.

(a) Each recordkeeper shall file electronically with the Commission
on or before May 31 of each year a list of the taxpayer identification
numbers (e.g., social security number or employer identification
number) of all lost securityholders for which such recordkeeper
maintains records of ownership interests as of May 1 of such year. The
list of lost securityholders shall include the name and telephone
number of the appropriate person to contact at the recordkeeper.
(b) For purposes of this section:
(1) Lost securityholder means the holder of record of a security or
any person from whom or on whose behalf a recordkeeper has received,
has acquired, holds, or carries securities;
(i) To whom two separate items of correspondence that were sent by
first class mail by the recordkeeper at least three months apart have
been returned as undeliverable; and
(ii) For whom the recordkeeper has not received information
regarding the securityholder's new address.
(2) Recordkeeper means:
(i) A member of a national securities exchange, a registered broker
or dealer, or a registered municipal securities dealer which maintains
records of securities received, acquired, held, or carried by or on
behalf of such entity for the account of any securityholder; or
(ii) A recordkeeping transfer agent as defined in Sec. 240.17Ad-
9(h).
(c) Every recordkeeper shall maintain such records necessary to
demonstrate compliance with the requirements set forth in this section.
Such records shall be maintained for a period of not less than three
years, the first year in an easily accessible place.
8. By amending Sec. 240.17Ad-7 by adding paragraph (i) to read as
follows:

Sec. 240.17Ad-7 Record retention.

* * * * *
(i) The records required by Sec. 240.17Ad-17(c) shall be maintained
for a period of not less than three years, the first year in an easily
accessible place.
9. By adding Sec. 240.17Ad-17 to read as follows:

Sec. 240.17Ad-17 Transfer agents' obligation to search for lost
securityholders.

(a)(1) Every recordkeeping transfer agent whose master
securityholder file includes accounts of lost securityholders shall
exercise reasonable care to ascertain the correct address of such
securityholders. In exercising reasonable care to ascertain for its
master securityholder file such lost securityholders' current address,
each recordkeeping transfer agent shall conduct two database searches
using at least one information database service. The transfer agent
shall search by name (if reasonably likely to locate the
securityholder) or taxpayer identification number (e.g., social
security number or employer identification number). Such database
searches must be conducted without charge to a lost securityholder and
with the following frequency:
(i) Within three months of such securityholder becoming a lost
securityholder; and
(ii) Between one year and eighteen months after the transfer
agent's first search for such lost securityholder.
(2) A transfer agent may not use a search method or service to
establish contact with lost securityholders that results in a charge to
a lost securityholder prior to completing the searches set forth in
paragraphs (a)(1)(i) and (a)(1)(ii) of this section.

(b) For purposes of this section:
(1) Information database service means any automated database
service that:
(i) Contains addresses of United States residents including
addresses in the geographic area in which the lost securityholder's
last known address is located;
(ii) Covers a reasonably broad geographic area;
(iii) Is indexed by name or taxpayer identification number; and
(iv) Is updated at least four times a year.
(2) Lost securityholder means a securityholder:
(i) To whom two separate items of correspondence that were sent by
first class mail at least three months apart have been returned as
undeliverable; and
(ii) For whom the transfer agent has not received information
regarding the securityholder's new address.
(c) Every recordkeeping transfer agent shall maintain such records
necessary to demonstrate compliance with the requirements set forth in
this section.
Dated: August 22, 1996.

By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-21892 Filed 8-27-96; 8:45 am]
BILLING CODE 8010-10-P

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A96-21892. Public record. Not legal advice.