Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 16707 

1 Dodd-Frank Wall Street Reform and Consumer 

Protection Act, Pub. L. 111–203, 124 Stat. 1376 

(2010). 

2See id. at Preamble. 

3See id. § 901 (‘‘This section may be cited as the 

‘Investor Protection and Securities Reform Act of 

2010’.’’); Title IX (‘‘Investor Protections and 

Improvements to the Regulation of Securities’’). 

4 17 CFR 240.17Ad–17. 

5Rule 17Ad–17(b)(2) defines a ‘‘lost 

securityholder’’ to mean ‘‘a securityholder: (i) To 

whom an item of correspondence that was sent to 

the securityholder at the address contained in the 

transfer agent’s master securityholder file has been 

returned as undeliverable; provided, however, that 

if such item is re-sent within one month to the lost 

securityholder, the transfer agent may deem the 

securityholder to be a lost securityholder as of the 

day the resent item is returned as undeliverable; 

and (ii) for whom the transfer agent has not 

received information regarding the securityholder’s 

new address.’’ 

6Section 17A(g)(1)(A), 15 U.S.C. 78q–1(g)(1)(A). 

We note that Congress, in drafting Exchange Act 

Section 17A(g), used a two-word formulation of the 

term ‘‘security holder.’’ In Rule 17Ad–17, however, 

there is a one-word formulation of the term 

‘‘securityholder.’’ For the sake of consistency within 

Rule 17Ad–17, we are proposing to use the term 

‘‘missing securityholder’’ in Rule 17Ad–17. 

Throughout this release, we have used the term 

‘‘securityholder’’ when discussing Rule 17Ad–17, 

and we have used the term ‘‘security holder’’ when 

discussing Section 929W of the Dodd-Frank Act or 

Section 17A(g) of the Exchange Act. 

7 Id. Section 17A(g) provides that written 

notification may be sent along with a check or other 

mailing subsequently sent to the missing security 

holder. 

number of registrants it may be 

necessary to impose time limits to 

ensure that everyone who wishes to 

speak has the opportunity to do so. 

Please refer to http://www.sba.gov/ 

jobsacttour for registration information. 

SBA will attempt to accommodate all 

interested parties. 

V. Information on Service for 

Individuals With Disabilities 

Reasonable accommodations will be 

provided to those who request 

assistance at least one week in advance 

of the meeting for which assistance is 

being requested. For a complete list of 

meeting dates, locations and points of 

contact please visit http://www.sba.gov/ 

jobsacttour. 

Authority: Pub. L. 111–240. 

Ana Ma, 

Chief of Staff. 

[FR Doc. 2011–7135 Filed 3–24–11; 8:45 am] 

BILLING CODE 8025–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR Part 240 

[Release No. 34–64099; File No. S7–11–11] 

RIN 3235–AL11 

Rule 17Ad–17; Transfer Agents’, 

Brokers’, and Dealers’ Obligation To 

Search for Lost Securityholders; 

Paying Agents’ Obligation To Search 

for Missing Securityholders 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Proposed rule. 

SUMMARY: The Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

(‘‘Dodd-Frank Act’’) amended the 

Securities Exchange Act of 1934 

(‘‘Exchange Act’’) by adding a subsection 

entitled, ‘‘Due Diligence for the Delivery 

of Dividends, Interest, and Other 

Valuable Property Rights.’’ The 

amendment directs the Securities and 

Exchange Commission (‘‘Commission’’) 

to revise Exchange Act Rule 17Ad–17, 

‘‘Transfer Agents’ Obligation to Search 

for Lost Securityholders’’ to: extend to 

brokers and dealers the requirement of 

Rule 17Ad–17 to search for lost 

securityholders; add to Rule 17Ad–17 a 

requirement that ‘‘paying agents’’ notify 

‘‘missing security holders’’ in writing 

that the paying agent has sent the 

missing security holder a check that has 

not yet been negotiated; add to Rule 

17Ad–17 an exclusion for paying agents 

from the notification requirements when 

the value of the not yet negotiated check 

is less than $25; and add to Rule 17Ad– 

17 a provision clarifying that the written 

notification requirements shall have no 

effect on State escheatment laws. The 

amendment also requires the 

Commission to ‘‘adopt such rules, 

regulations, and orders necessary to 

implement this subsection no later than 

1 year after the date of enactment of this 

subsection.’’ The Commission is 

publishing for comment proposed 

amendments to Rule 17Ad–17 to 

implement the statutory requirements. 

DATES: Comments should be received on 

or before May 9, 2011. 

ADDRESSES: Comments may be 

submitted by any of the following 

methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/proposed.shtml); 

• Send an e-mail to rulecomments@sec.gov and include File 

Number S7–11–11 on the subject line; 

or 

• Use the Federal eRulemaking Portal 

(http://www.regulations.gov) and follow 

the instructions for submitting 

comments. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number S7–11–11. To help us process 

and review your comments more 

efficiently, please use only one method. 

The Commission will post all comments 

on the Commission’s Internet Web site 

(http://www.sec.gov/rules/ 

proposed.shtml). Comments are also 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street, NE., 

Washington, DC 20549, on official 

business days between the hours of 

10 a.m. and 3 p.m. All comments 

received will be posted without change; 

the Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

publicly available. 

FOR FURTHER INFORMATION CONTACT: Jerry 

W. Carpenter, Assistant Director, or 

Thomas C. Etter, Jr., Special Counsel, at 

(202) 551–5710, Division of Trading and 

Markets, Securities and Exchange 

Commission, 100 F Street, NE., 

Washington, DC 20549–7010. 

SUPPLEMENTARY INFORMATION: 

I. Introduction 

On July 21, 2010, the President signed 

the Dodd-Frank Act into law.1 The 

Dodd-Frank Act was enacted to, among 

other things, promote the financial 

stability of the United States by 

improving accountability and 

transparency in the financial system.2

Title IX of the Dodd-Frank Act provides 

the Commission with new tools to 

protect investors and improve the 

regulation of securities.3

Section 929W of the Dodd-Frank Act 

added subsection (g) to Section 17A of 

the Exchange Act (‘‘Section 17A(g)’’), 

which requires the Commission to 

revise Rule 17Ad–17 under the 

Exchange Act (‘‘Rule 17Ad–17’’) 4 to 

extend the rule’s requirement that 

transfer agents search for ‘‘lost 

securityholders’’ to brokers and dealers.5

Section 17A(g) further directs the 

Commission to revise Rule 17Ad–17 to 

provide a requirement that the ‘‘paying 

agent provide a single written 

notification to each missing security 

holder that the missing security holder 

has been sent a check that has not yet 

been negotiated.’’ 6 Under Section 

17A(g), written notification must be sent 

to a missing security holder no later 

than seven months after the sending of 

the not yet negotiated check.7

Section 17A(g)(1)(D)(ii) defines 

‘‘paying agent’’ to include ‘‘any issuer, 


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8Section 17A(g)(1)(D)(ii), 15 U.S.C. 78q– 

1(g)(1)(D)(ii). 

9Section 17A(g)(1)(D)(i), 15 U.S.C. 78q– 

1(g)(1)(D)(i). 

10See Section 17A(g)(1)(B) and (C), 15 U.S.C. 

78q–1(g)(1)(B) and (C). 

11Section 17A(g)(2), 15 U.S.C. 78q–1(g)(2). 

12 Id. 

13See Exchange Act Release No. 39176 (Oct. 1, 

1997), 62 FR 52229 (Oct. 7, 1997) (adopting Rule 

17Ad–17). 

14See id. 15See id. Generally, after expiration of a certain 

period of time, which varies from state to state but 

is usually three to seven years, an issuer or its 

transfer agent must remit abandoned property (e.g., 

securities and funds of lost securityholders) to a 

state’s unclaimed property administrator pursuant 

to the state’s escheatment laws. 

16See Exchange Act Release No. 37595 (Aug. 22, 

1996), 61 FR 44249 (Aug. 28, 1996) (proposing Rule 

17Ad–17). 17The proposal also would amend paragraph 

(a)(1) of Rule 17Ad–17 by: (i) Inserting the words 

‘‘and every broker or dealer that holds customer 

security accounts’’ following the words ‘‘accounts of 

lost securityholders;’’ (ii) inserting the words ‘‘and 

each broker or dealer that holds customer security 

accounts’’ following the words ‘‘recordkeeping 

transfer agent;’’ and (iii) inserting the words ‘‘and 

broker or dealer’’ following the words ‘‘The transfer 

agent.’’ The proposal would amend paragraph (a)(2) 

by inserting the words ‘‘, or broker or dealer’’ 

following the words ‘‘transfer agent’’ and paragraph 

(a)(3) by inserting the words ‘‘, or broker or dealer’’ 

following the words ‘‘transfer agent’’ and the words 

‘‘or customer security account records of the broker 

or dealer’’ following the words ‘‘master 

securityholder files.’’ In addition, the proposal 

would amend paragraph (b)(2)(i) of Rule 17Ad–17 

by inserting ‘‘or customer security account records 

of a broker or a dealer’’ following the words ‘‘master 

securityholder file’’ and by inserting the words ‘‘, or 

broker or dealer’’ following the words 

‘‘securityholder, the transfer agent.’’ The proposal 

would amend paragraph (b)(2)(ii) by inserting the 

words ‘‘or broker or dealer’’ following the words 

‘‘transfer agent’’. 

18Exchange Act Section 3(a)(4)(A), 15 U.S.C. 

78c(a)(4)(A). 

19Exchange Act Section 3(a)(5)(A), 15 U.S.C. 

78c(a)(5)(A). 

20 17 CFR 240.15c3–3. 

21Section 17A(g)(1)(D)(ii), 15 U.S.C. 78q– 

1(g)(1)(D)(ii). 

22Section 17A(g)(1)(D)(i), 15 U.S.C. 78q– 

1(g)(1)(D)(i). 

23Section 17A(g)(1)(B), 15 U.S.C. 78q–1(g)(1)(B). 

24Section 17A(g)(1)(C), 15 U.S.C. 78q–1(g)(1)(C). 

transfer agent, broker, dealer, 

investment adviser, indenture trustee, 

custodian, or any other person that 

accepts payments from the issuer of a 

security and distributes the payments to 

the holders of the security.’’ 8 In 

addition, Section 17A(g)(1)(D)(i) 

provides that ‘‘a security holder shall be 

considered a ‘missing security holder’ if 

a check is sent to the security holder 

and the check is not negotiated before 

the earlier of the paying agent sending 

the next regularly scheduled check or 

the elapsing of 6 months after the 

sending of the not yet negotiated 

check.’’ 9

Section 17A(g)(1)(B) and (C) also 

require that the revisions to the rule: (i) 

Provide an exclusion for paying agents 

from the notification requirements when 

the value of the not yet negotiated check 

is less than $25 and (ii) add a provision 

to make clear that the notification 

requirements imposed on paying agents 

shall have no effect on state 

escheatment laws.10

Section 17A(g)(2) requires the 

Commission to adopt rules, regulations, 

or orders necessary to implement the 

provisions of Section 17A(g)(1) no later 

than one year after the date of 

enactment of the Dodd-Frank Act.11

Section 17A(g)(2) further requires the 

Commission, in proposing such rules, to 

seek to minimize disruptions to the 

current systems used by or on behalf of 

paying agents to process payments to 

account holders and avoid requiring 

multiple paying agents to send written 

notification to a missing security holder 

regarding the same not yet negotiated 

check.12

II. Rule 17Ad–17 

A. Background 

The Commission adopted Rule 17Ad– 

17 in 1997 to address situations where 

recordkeeping transfer agents lose 

contact with securityholders by 

requiring transfer agents to conduct 

database searches for lost 

securityholders.13 As the Commission 

noted at that time, such loss of contact 

can be harmful to securityholders 

because they no longer receive corporate 

communications or the interest and 

dividend payments to which they may 

be entitled.14 Additionally, their 

securities and any related interest and 

dividend payments to which they may 

be entitled are often placed at risk of 

being deemed abandoned under 

operation of state escheatment laws.15

This loss of contact has various causes, 

but it most frequently results from: (1) 

Failure of a securityholder to notify the 

transfer agent of his/her correct address, 

especially after relocating to a new 

address or (2) failure of the estate of a 

deceased securityholder to notify the 

transfer agent of the death of the 

securityholder and the name and 

address of the trustee for the estate.16

B. Discussion 

The proposed amendments would 

implement the statutory directive to 

extend the application of Rule 17Ad–17 

to brokers and dealers. Specifically, the 

Commission proposes to revise 

paragraph (a) of Rule 17Ad–17 to add 

the words ‘‘broker, or dealer’’ following 

the rule’s existing references to transfer 

agents.17

The Exchange Act generally defines a 

‘‘broker’’ as ‘‘any person engaged in the 

business of effecting transactions in 

securities for the account of others,’’ 18

and a ‘‘dealer’’ as ‘‘any person engaged 

in the business of buying and selling 

securities for such person’s own account 

though a broker or otherwise.’’ 19 The 

proposed rule would apply to all 

brokers and dealers. As a practical 

matter, however, the Commission 

preliminarily believes that the only 

brokers and dealers that would have 

obligations under the amended rule 

would be those that carry securities for 

the accounts of ‘‘customers’’ within the 

meaning of Exchange Act Rule 15c3– 

3.20 Such brokers and dealers generally 

are referred to as ‘‘clearing firms’’ (as 

opposed to ‘‘introducing firms’’) and 

tend to be the larger brokerage firms. 

The Commission proposes to 

redesignate current paragraph (c) of 

Rule 17Ad–17 as paragraph (d) of the 

rule, as discussed below. Proposed new 

paragraph (c) would include a 

requirement that a ‘‘paying agent’’ must 

provide written notification no later 

than seven months after the sending of 

any not yet negotiated check to each 

‘‘missing securityholder’’ to inform the 

missing securityholder that such 

missing securityholder has been sent a 

check that has not yet been negotiated. 

Proposed paragraph (c)(2) of Rule 

17Ad–17 would define ‘‘paying agent,’’ 

consistent with the definition in Section 

17A(g),21 to include ‘‘any issuer, transfer 

agent, broker, dealer, investment 

adviser, indenture trustee, custodian, or 

any other person’’ that accepts payments 

from an issuer of securities and 

distributes the payments to 

securityholders. Proposed paragraph 

(c)(3) of Rule 17Ad–17 would, again 

consistent with Section 17A(g),22

provide that a person would be 

considered a ‘‘missing securityholder’’ if 

a check is sent to the securityholder and 

the check is not negotiated before the 

earlier of the paying agent’s sending the 

next regularly scheduled check or the 

elapsing of six months after the sending 

of the not yet negotiated check. 

Proposed paragraph (c)(4) of Rule 

17Ad–17 would, as required by Section 

17A(g),23 exclude a paying agent from 

the notification requirements if the 

value of the not yet negotiated check is 

less than $25. Proposed paragraph (c)(5) 

of Rule 17Ad–17 would, again as 

required by Section 17A(g),24 provide 

that the requirements of paragraph (c)(1) 

of Rule 17Ad–17 would have no effect 

on state escheatment laws. 

Currently, Rule 17Ad–17(c) requires 

that every recordkeeping transfer agent 

shall maintain records to demonstrate 

compliance with the requirements of the 


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25 17 CFR 240.17Ad–17(c). 

26Currently, pursuant to Rule 17Ad–7(i), 17 CFR 

240.17Ad–7(i), transfer agents must maintain 

records to show their compliance with Rule 17Ad– 

17. This same requirement for transfer agents, 

brokers, dealers, and paying agents would be stated 

explicitly in proposed amended Rule 17Ad–17. In 

order to maintain consistency with proposed 

amended Rule 17Ad–17, we are also proposing a 

technical change to Rule 17Ad–7(i) so that it would 

cross-reference proposed amended Rule 17Ad– 

17(d) rather than proposed amended Rule 17Ad– 

17(c). 

27See Section 17A(g)(2), 15 U.S.C. 78q–1(g)(2). 

28We note that the term ‘‘lost securityholder’’ was 

adopted as part of Rule 17Ad–17 in 1997, and 

Congress used the term ‘‘missing security holder’’ 

when it added new subsection (g) to Exchange Act 

Section 17A. For the sake of consistency within 

Rule 17Ad–17, we are proposing to use the term 

‘‘missing securityholder’’ in Rule 17Ad–17. 

29Section 17A(g)(2), 15 U.S.C. 78q–1(g)(2). 

30 44 U.S.C. 3501 et seq. 

31 17 CFR 240.17Ad–17(a). 

32 17 CFR 240.17Ad–17(c) and (d). 

33 Id. 

34Based on information provided by the industry, 

the Commission estimates that broker and dealers 

will annually search for approximately 250,000 lost 

securityholders. The Commission estimates that 

approximately $3.00 will be spent per account in 

order to conduct a search (comprised of 

approximately $2.00 for two searches and 

Continued 

rule.25 The Commission is proposing to 

redesignate this provision as paragraph 

(d) of the rule and to amend the 

paragraph to also require recordkeeping 

transfer agents, brokers, dealers, and 

paying agents to maintain records to 

demonstrate their compliance with the 

rule. The rule would require that such 

records be maintained for a period of 

not less than three years with the first 

year in an easily accessible place.26

Section 17A(g) further directs the 

Commission to avoid requiring multiple 

paying agents to send written 

notification to a missing security holder 

regarding the same not yet negotiated 

check.27 We do not believe that multiple 

notifications by different paying agents 

for a given check is a likely scenario 

under our proposed rule amendments 

because we do not believe an issuer 

would use two paying agents for the 

same distribution. We request comment 

on the likelihood of such an occurrence 

and, if such an occurrence is probable 

with any frequency, on ways to avoid it 

from happening. 

We are also proposing to amend the 

title of Rule 17Ad–17 to clarify that it 

would apply to entities other than 

transfer agents. Specifically, we propose 

to re-title the rule ‘‘Transfer agents’, 

brokers’, and dealers’ obligation to 

search for lost securityholders; paying 

agents’ obligation to search for missing 

securityholders’’. 

Finally, to provide brokers, dealers, 

and paying agents with sufficient time 

to develop systems to comply with the 

proposed amendments to Rule 17Ad– 

17, we propose to establish a 

compliance date for the amendments of 

one year following the date on which 

the Commission takes final action on 

this proposal. We preliminarily believe 

that one year would provide brokers, 

dealers, and paying agents with ample 

time to come into compliance without 

unduly delaying the benefits to 

securityholders that Congress intended 

in enacting Section 17A(g). 

III. Request for Public Comment 

The Commission requests comment 

on all aspects of the proposed 

amendments to Rule 17Ad–17. We 

request comments on how brokers and 

dealers anticipate complying with the 

proposed rule’s requirement to search 

for lost securityholders. We also request 

comment on whether the new term 

‘‘missing securityholder,’’ and its related 

requirements and timeframes will be 

confused with the rule’s existing term 

‘‘lost securityholder’’ and its related 

requirements and timeframes. We 

particularly request comment regarding 

whether brokers, dealers, and transfer 

agents, which are also included in the 

definition of ‘‘paying agent,’’ foresee 

issues that may result from the use of 

the two terms.28 With respect to Section 

17A(g)(2)’s requirement that in 

preparing these amendments to Rule 

17Ad–17 the Commission shall seek to 

‘‘minimize disruptions to current 

systems,’’ we request comment on any 

potential disruptions that may result 

from the proposed revisions and how to 

minimize any such potential 

disruptions.29 We are also requesting 

cost data for implementation of the 

proposed revisions by industry 

participants. We are soliciting 

comments on any burdens to commerce 

that might result from the proposed rule 

amendments. Commentators should 

provide empirical data to support their 

views. 

Finally, we request comments on our 

proposal to establish a compliance date 

for the amendments of one year 

following final action by the 

Commission. 

IV. Paperwork Reduction Act 

The proposed amendments to Rule 

17Ad–17 would require a new and 

mandatory ‘‘collection of information’’ 

within the meaning of the Paperwork 

Reduction Act of 1995 (‘‘PRA’’),30

consisting of maintaining records in 

order to comply with and to 

demonstrate compliance with the rule 

by brokers and dealers who would be 

newly added to paragraph (a) of the 

rule 31 and by paying agents who would 

be newly added to paragraphs (c) and 

(d) of the rule.32 Accordingly, the PRA 

would be applicable to the proposed 

rule and would require approval of the 

Office of Management and Budget. The 

relevant record collection requirements 

would be covered by amendments to 

paragraph (a) to Rule 17Ad–17, new 

paragraph (c) of Rule 17Ad–17, and 

amended and renumbered paragraph (d) 

of Rule 17Ad–17.33

The collection of information under 

the proposed paragraph (b) of Rule 

17Ad–17 is necessary to enable transfer 

agents, brokers, and dealers and paying 

agents, as custodians of records that 

determine the ownership of securities 

and the entitlement to corporate 

distributions, to reduce the number of 

lost and missing securityholders. 

The term ‘‘paying agents’’ would 

include the following approximate 

numbers of entities: 10,379 issuers that 

file reports with the Commission; 5,063 

broker-dealers registered with the 

Commission; 536 transfer agents 

registered with the Commission and the 

banking agencies; 11,797 registered 

investment advisers registered with the 

Commission; 264 indenture trustees; 

and 896 custodians; for a total of 

approximately 28,931 entities plus an 

unknown number in the category of 

‘‘any other person.’’ 

Based on discussions with 

participants in the securities industry, 

we are assuming for the purposes of 

proposed Rule 17Ad–17, that on an 

annual basis, there will be 

approximately 250,000 searches by 

brokers and dealers and 50,000 

notifications by paying agents. 

A. Paragraph (a) 

Under paragraph (a) of the proposed 

rule amendments, recordkeeping 

transfer agents, brokers, and dealers 

would collect the names and addresses 

of their lost securityholders, and the 

recordkeeping transfer agents, brokers, 

and dealers would submit this 

information to information data bases 

pursuant to paragraph (b) of the rule. 

Such data base searches must be 

conducted without charge to the lost 

securityholders. Much of the new 

information required to be collected 

(such as the taxpayer identification 

numbers of lost securityholders) 

generally is already maintained by 

brokers and dealers and transfer agents 

so there should not be an additional 

cost. Therefore, the Commission 

anticipates that the increased hourly 

burden imposed by these aspects of the 

rule revisions would be about two 

minutes per account per search.34 Based 


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approximately $1.00 in administration costs). 

Therefore, the total cost for all brokers and dealers 

would be $750,000 (250,000 multiplied by $3.00). 35 17 CFR 240.0–10(c). 

upon discussions with market 

participants, adding a corrected address 

in the event one is found would require 

approximately three minutes. The 

burden per account would be no more 

than five minutes. Assuming 250,000 

annual searches by brokers and dealers 

for lost security holders, the increased 

hourly burden would be 1,250,000 

minutes, or 20,833 hours (1,250,000 

divided by 60). 

B. Paragraph (c) 

Under proposed paragraph (c)(1) of 

the rule, a paying agent must provide 

not less than one written notification to 

each missing securityholder no later 

than seven months after such 

securityholder has been sent a check 

that has not yet been negotiated. The 

notification may be sent with a check or 

other mailing subsequently sent to the 

missing securityholder but must be 

provided no later than seven months 

after the sending of the not yet 

negotiated check. The rule further 

provides that a paying agent shall be 

excluded from the notification 

requirement where the value of the not 

yet negotiated check is less than $25 

and that the requirements of paragraph 

(c)(1) shall have no effect on state 

escheatment laws. 

The paying agents could include 

approximately 28,931 identifiable 

entities as noted previously in this 

section. However, despite the large 

number of entities eligible to be paying 

agents, that number would be limited to 

those firms that would be able to 

provide financial services relevant to 

the rule. The Commission estimates that 

there would likely be no more than 

1,000 entities actually serving as paying 

agents and that these entities would 

consist primarily of broker-dealers and 

transfer agents (including bank transfer 

agents), the sort of financial institutions 

that are accustomed to processing 

checks and other commercial 

documents, dealing with securityholder 

issues, maintaining financial records, 

and serving as intermediaries between 

issuers and securityholders. We note 

that, technically, the startup costs to 

enter the paying agent business, for a 

business entity already in the financial 

industry, would appear to be 

exceedingly modest in that the basic 

elements of being a paying agent simply 

involve mailing notification letters, 

sometimes including checks, and 

maintaining related financial records. 

While the entry costs would appear 

modest, to operate this sort of low 

margin business profitably would 

require economies of scale and existing 

business relationships that presumably 

would limit the likely number of active 

paying agents. 

If we assume 1,000 paying agents 

notifying 50,000 missing 

securityholders with each of the 

notifications requiring three minutes of 

labor, we estimate the burden imposed 

by Rule 17Ad–17(c) on ‘‘paying agents’’ 

for providing written notification to all 

‘‘missing securityholders’’ who have 

been sent checks that after seven 

months have not yet been negotiated to 

be a total of 150,000 minutes or a 

burden of 2,500 hours (150,000 divided 

by 60). 

C. Paragraph (d) 

Proposed paragraph (d) of Rule 17Ad– 

17 would require that transfer agents, 

brokers, dealers, and paying agents that 

are subject to the rule to maintain 

records necessary to demonstrate their 

compliance with the rule. The rule also 

would require transfer agents, brokers, 

dealers, and paying agents to maintain 

written procedures that describe their 

methodology for compliance. The 

records required by the proposed rule 

must be maintained for a period of not 

less than three years, with the first year 

in an easily accessible place, consistent 

with Exchange Act Section 17A. Based 

on discussions with participants in the 

securities industry, we believe that the 

annual recordkeeping function for 

records, which would be processed 

electronically, would require 

approximately one hour for every 500 

missing securityholder accounts and 

every 500 lost securityholder accounts. 

For 250,000 searches by brokers and 

dealers, the recordkeeping time would 

be approximately 500 hours. For 

notification of 50,000 missing 

securityholders, the recordkeeping time 

for the paying agents (including any 

issuer, transfer agent, broker, dealer, 

investment advisor, indenture trustee, 

custodian, and any other person) would 

be approximately 100 hours. 

In summary, assuming 250,000 

searches by brokers and dealers (20,833 

hours + 500 hours = 21,333 hours) and 

50,000 notifications by paying agents 

(2,500 hours + 100 hours = 2,600 hours), 

the total estimated burden would be 

23,933 hours (21,333 hours + 2,600 

hours). 

V. Costs and Benefits of Proposed 

Amendments 

The costs of this proposal are imposed 

entirely by Section 929W of the DoddFrank Act and Section 17A(g). These 

statutory costs include, among other 

things, the application of the 

requirements of Rule 17Ad–17(a) to 

brokers and dealers, and the 

requirements imposed on ‘‘paying 

agents’’ by proposed Rule 17Ad–17(c) 

and (d). The costs are not imposed on 

brokers and dealers or paying agents by 

the Commission. Accordingly, it is not 

for the Commission to determine 

whether these costs are justified by the 

anticipated benefits of the revised rule. 

Nevertheless, we request comment on 

the potential costs for any necessary 

modifications to information gathering, 

management, and record-keeping 

systems or procedures, as well as any 

potential costs or benefits resulting from 

the proposal for brokers, dealers, 

issuers, transfer agents, investment 

advisers, indenture trustees, custodians, 

regulators, or others. Commenters 

should provide analysis and data to 

support their views on the costs and 

benefits associated with the proposal. 

The proposed rule changes should 

provide specific benefits to issuers and 

U.S. investors, benefits which are not 

readily quantifiable in terms of dollar 

value. Nevertheless, the proposal 

would: (1) Invoke the services of 

transfer agents and brokers and dealers 

to reduce the number of lost 

securityholders; (2) invoke the services 

of all paying agents to reduce the 

number of missing securityholders; and 

(3) improve the accuracy of 

securityholder records. We are seeking 

comment on how we may better identify 

and quantify the benefits that may result 

from the adoption of the proposed 

amendments. 

VI. Initial Regulatory Flexibility Act 

Analysis 

A. Reasons for Proposed Action 

This action was expressly directed by 

legislation (i.e., Section 929W of the 

Dodd-Frank Act, which added 

paragraph (g) to Section 17A of the 

Exchange Act). 

B. Objectives and Legal Basis 

The objectives of this proposal, as 

discussed above in Sections I and II, are 

to help reduce the number of lost and 

missing securityholders and to further 

the Commission’s mission of protecting 

investors. The legal basis for the 

proposal is set forth in Section 17A(g). 

C. Small Entities Subject to the Rule 

1. Brokers and Dealers 

According to Exchange Act Rule 

0–10(c),35 a broker or dealer is a small 

entity if it: (1) Had total capital (net 

worth plus subordinated liabilities) of 

less than $500,000 on the date in the 


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Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 16711 

36Paragraph (i) of Rule 0–10, 17 CFR 240.0–10, 

discusses the meaning of ‘‘affiliated person’’ as 

referenced in Paragraph (c) of Rule 0–10. 

37 17 CFR 240.17Ad–17. 

38See Exchange Act Rule 0–10(a). 17 CFR 240.0– 

10(a). 

39See Exchange Act Rule 0–10(h). 17 CFR 240.0– 

10(h). 

40See Exchange Act Rule 0–10(c). 17 CFR 240.0– 

10(c). 

41See Investment Advisers Act Rule 0–7(a). 17 

CFR 275.0–7(a). 

42See Trust Indenture Act Rule 0–7. 17 CFR 

260.0–7. 

43See 13 CFR 121.201. 44 15 U.S.C. 78c(a)(34)(B). 

45 5 U.S.C. 603. 

46 5 U.S.C. 801, et seq. The Regulatory Flexibility 

Act requires regulatory agencies to consider the 

impact of their proposed and final regulations on 

small entities. 

prior fiscal year as of which its audited 

financial statements were prepared 

pursuant to Section 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.36 Of the 5,063 

brokers and dealers registered with the 

Commission, approximately 879 are 

small brokers or dealers. We note that 

the proposed amendments to Rule 

17Ad–17 would, as a practical matter, 

apply only to brokers and dealers that 

carry securities for customer accounts 

(i.e., clearing firms), which tend to be 

the larger broker and dealer firms. There 

are 503 clearing firms registered with 

the Commission, none of which 

qualifies as a small business. 

Accordingly, we do not expect small 

brokers or dealers to be affected by the 

amendments to Rule 17Ad–17.37

2. Paying Agents 

Section 17A(g)(D)(ii) defines the term 

‘‘paying agent’’ as including ‘‘any issuer, 

transfer agent, broker, dealer, 

investment adviser, indenture trustee, 

custodian, or any other person that 

accepts payment from the issuer of a 

security and distributes the payments to 

the holder of the security.’’ With respect 

to data for these entities: (1) 10,379 

issuers file reports with the Commission 

of which 1,207 qualify as small 

businesses; 38 (2) 536 transfer agents 

registered with the Commission or with 

the Federal banking agencies of which 

135 qualify as small businesses; 39 (3) 

5,063 brokers-dealers registered with the 

Commission of which 879 qualify as 

small businesses; 40 (4) 11,797 

investment advisers registered with the 

Commission of which 718 qualify as 

small businesses; 41 (5) 264 indenture 

trustees of which four qualify as small 

businesses; 42 and (6) 896 custodians of 

which 11 qualify as small businesses.43

The Commission has no supportable 

basis to estimate the number of small 

entities with respect to the remaining 

category (i.e., any other person). As 

noted herein in Section IV, while 

approximately 28,931 entities have been 

identified as potential ‘‘paying agents,’’ 

the Commission preliminarily believes 

that no more than 1,000 such entities 

would actually serve as paying agents. 

We preliminarily believe that the bulk 

of paying agent services would be 

provided by brokerage firms that handle 

customer securities (which as discussed 

above, as clearing firms, would not be 

small entities) and transfer agents 

(including bank transfer agents), both of 

which are firms that typically serve as 

intermediaries between issuers and 

securityholders. 

D. Reporting, Recordkeeping, and Other 

Compliance Requirements 

Proposed new paragraph (d) of Rule 

17Ad–17 would require recordkeeping 

transfer agents, or brokers, or dealers, 

and paying agents to demonstrate 

compliance with these provisions and to 

maintain written procedures that 

describe the methodology for complying 

with the provisions. Such records 

would be required to be maintained for 

not less than three years, the first year 

in an easily accessible place. Their 

maintenance would be subject to 

examination by the appropriate 

regulatory agency as defined by Section 

3(a)(34)(B) of the Exchange Act.44

E. Duplicative, Overlapping, or 

Conflicting Federal Rules 

The Commission preliminarily 

believes there are no rules that 

duplicate, overlap, or conflict with the 

proposed rule. 

F. Significant Alternatives 

With respect to small entities, the 

Commission considered whether viable 

alternatives to the proposed rulemaking 

exist that could accomplish the stated 

objectives of Section 17A(g) of the 

Exchange Act and whether they would 

minimize any significant economic 

impact of proposed rules on small 

entities. Specifically, the Commission 

considered the following alternatives: 

(1) The establishment of different 

procedures that take into account the 

resources available to small entities; 

(2) the clarification, consolidation, or 

simplification of compliance and 

reporting requirements under the 

proposed rules insofar as they affect 

small entities; (3) the use of 

performance rather than design 

standards; and (4) an exemption from 

coverage of the rule, or any part thereof, 

for small entities. However, inasmuch as 

Section 929W of the Dodd-Frank Act, 

which added Section 17A(g) to the 

Exchange Act, expressly requires the 

proposed revisions, no alternative to the 

proposed rule amendment appears 

available at this time. 

The Commission encourages the 

submission of written comments with 

respect to any aspect of the Initial 

Regulatory Flexibility Analysis 

(‘‘IFRA’’).45 Those comments should 

specify costs of compliance with the 

proposed rule, and suggest alternatives 

that would accomplish the objective of 

the proposed amendments to Rule 

17Ad–17. A copy of the IRFA may be 

obtained by contacting Thomas C. Etter, 

Jr., Division of Trading and Markets, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–7010, telephone no. (202) 551– 

5713. 

VII. Consideration of Burden on 

Competition, and Promotion of 

Efficiency, Competition, and Capital 

Formation 

The proposed amendments to the rule 

should have a neutral effect on 

efficiency and capital formation and 

should have no material anticompetitive 

effects. While we believe the proposed 

amendments to the rule would apply to 

all transfer agents, brokers, dealers, and 

paying agents, they could in theory 

create a barrier to entry for potential 

new entrants if the compliance costs 

associated with searching for and 

contacting lost or missing 

securityholders are high enough. The 

Commission encourages the submission 

of written comments on Section VII. 

VIII. SBREFA Consideration of Impact 

on the Economy 

For purposes of the Small Business 

Regulatory Enforcement Fairness Act of 

1996,46 a rule is major if it has resulted 

in or is likely to result in: 

• An annual effect on the economy of 

$100 million or more; 

• A major increase in costs or prices 

for consumers or individual industries; 

or 

• Significant adverse effects on 

competition, investment, or innovation. 

We request comment regarding the 

potential impact of the proposed rule 

amendments on the economy on an 

annual basis. We also request that 

commenters provide empirical data and 

other factual support for their views. 


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16712 Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 

IX. Statutory Basis and Text of 

Proposed Amendments 

Statutory Basis 

Pursuant to Section 17A(g) of the 

Exchange Act, 15 U.S.C. 78q–1(g), the 

Commission proposes to amend 

§ 240.17Ad–7 and § 240.17Ad–17 under 

the Exchange Act in the manner set 

forth below. 

List of Subjects in 17 CFR Part 240 

Reporting and recordkeeping 

requirements, Securities. 

Text of the Amendments 

In accordance with the foregoing, the 

Commission proposes to amend part 

240 of Chapter II of Title 17 of the Code 

of Federal Regulations as follows: 

PART 240—GENERAL RULES AND 

REGULATIONS, SECURITIES 

EXCHANGE ACT OF 1934 

1. The general authority citation for 

part 240 is revised and the following 

citation is added in numerical order to 

read as follows: 

Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 

77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn, 

77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 78j, 

78j–1, 78k, 78k–1, 78l, 78m, 78mm, 78n, 

78n–1, 78o, 78o–4, 78p, 78q, 78q–1, 78s, 

78u–5, 78w, 78x, 78ll, 78mm, 80a–20, 80a– 

23, 80a–29, 80a–37, 80b–3, 80b–4, 80b–11, 

and 7201 et seq.; 18 U.S.C. 1350; and 12 

U.S.C. 5221(e)(3) unless otherwise noted. 

* * * * * 

Section 240.17Ad–17 is also issued under 

Pub. L. 111–203, § 929W, 124 Stat. 1869 

(2010). 

* * * * * 

§ 240.17Ad–7 [Amended] 

2. Section 240.17Ad–7(i) is amended 

by removing ‘‘240.17Ad–17(c)’’ and 

adding in its place ‘‘240.17Ad–17(d)’’. 

3. Section 240.17Ad–17 is amended 

by: 

a. Revising the heading. 

b. Revising paragraph (a)(1). 

c. In paragraph (a)(2) adding the 

phrase ‘‘, or broker or dealer’’ following 

the word ‘‘agent’’. 

d. In paragraph (a)(3) introductory 

text adding the phrase ‘‘, or broker or 

dealer’’ following the word ‘‘agent’’. 

e. In paragraph (a)(3)(ii) adding the 

phrase ‘‘or customer security account 

records of the broker or dealer’’ 

following the word ‘‘files’’. 

f. In paragraph (b)(2)(i) adding the 

phrase ‘‘or customer security account 

records of a broker or dealer’’ following 

the word ‘‘file’’ and adding the phrase ‘‘, 

or broker or dealer’’ following the phrase 

‘‘securityholder, the transfer agent’’. 

g. In paragraph (b)(2)(ii) adding the 

phrase ‘‘or broker or dealer’’ following 

the word ‘‘agent’’. 

h. Redesignating paragraph (c) as 

paragraph (d), and adding new 

paragraph (c). 

i. Revising newly redesignated 

paragraph (d). 

The revisions and addition read as 

follows: 

§ 240.17Ad–17 Transfer agents’, brokers’, 

and dealers’ obligation to search for lost 

securityholders; paying agents’ obligation 

to search for missing securityholders. 

(a)(1) Every recordkeeping transfer 

agent whose master securityholder file 

includes accounts of lost 

securityholders and each broker or 

dealer that holds customer security 

accounts shall exercise reasonable care 

to ascertain the correct addresses of 

such securityholders. In exercising 

reasonable care to ascertain such lost 

securityholders’ correct addresses, each 

recordkeeping transfer agent and each 

broker or dealer shall conduct two data 

base searches using at least one 

information data base service. The 

transfer agent and broker or dealer shall 

search by taxpayer identification 

number or by name if a search based on 

taxpayer identification number is not 

reasonably likely to locate the 

securityholder. Such data searches must 

be conducted without charge to a lost 

securityholder and with the following 

frequency: 

(i) Between three and twelve months 

of such securityholder becoming a lost 

securityholder and 

(ii) Between six and twelve months 

after the transfer agent’s or broker’s or 

dealer’s first search for such lost 

securityholder. 

* * * * * 

(c)(1) The paying agent, as defined in 

paragraph (c)(2) of this section, shall 

provide not less than one written 

notification to each missing 

securityholder stating that such 

securityholder has been sent a check 

that has not yet been negotiated. Such 

notification may be sent with a check or 

other mailing subsequently sent to the 

missing securityholder, but must be 

provided no later than seven (7) months 

after the sending of the not yet 

negotiated check. 

(2) The term paying agent shall 

include any issuer, transfer agent, 

broker, dealer, investment adviser, 

indenture trustee, custodian, or any 

other person that accepts payments from 

the issuer of a security and distributes 

the payments to the holder of the 

security. 

(3) The securityholder shall be 

considered a missing securityholder if a 

check is sent to the securityholder and 

the check is not negotiated before the 

earlier of the paying agent’s sending the 

next regularly scheduled check or the 

elapsing of six (6) months after the 

sending of the not yet negotiated check. 

(4) A paying agent shall be excluded 

from any notification requirement 

where the value of the not yet 

negotiated check is less than $25. 

(5) The requirements of paragraph 

(c)(1) of this section shall have no effect 

on state escheatment laws. 

(d) Every recordkeeping transfer 

agent, broker, or dealer carrying 

securities for the accounts of customers, 

and every paying agent shall maintain 

records to demonstrate compliance with 

the requirements set forth in this section 

which shall include written procedures 

that describe the transfer agent’s, or 

broker’s or dealer’s, or paying agent’s 

methodology for complying with this 

section. Such records shall be 

maintained for a period of not less than 

three (3) years with the first year in an 

easily accessible place. 

By the Commission. 

Dated: March 18, 2011. 

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2011–6940 Filed 3–24–11; 8:45 am] 

BILLING CODE 8011–01–P 

AGENCY FOR INTERNATIONAL 

DEVELOPMENT 

22 CFR Part 205 

RIN 0412 AA–69 

Participation by Religious 

Organizations in USAID Programs 

AGENCY: United States Agency for 

International Development (USAID). 

ACTION: Proposed rule. 

SUMMARY: USAID is proposing to amend 

part 205 to more accurately reflect 

current Establishment Clause 

jurisprudence with respect to the use of 

Federal funds for inherently religious 

activities. 

DATES: Comments must be submitted by 

May 9, 2011. 

ADDRESSES: Interested persons are 

invited to submit comments regarding 

this proposed rule to: The Center for 

Faith-Based and Community Initiatives, 

U.S. Agency for International 

Development, Room 6.07–023, 1300 

Pennsylvania Avenue, NW., 

Washington, DC 20523. 

Communications should refer to the 

‘‘proposed rule.’’ You may submit your 

comments by fax to 202–216–0077 or by 

e-mail to fbci@usaid.gov. A copy of each 

communication submitted will be 

available for inspection and copying 


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