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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

Release No. 34-76743; File No. S7-27-15

TRANSFER AGENT REGULATIONS

AGENCY: Securities and Exchange Commission

ACTION: Advance notice of proposed rulemaking; Concept release; Request for comment

SUMMARY: The Securities and Exchange Commission (“Commission”) is publishing this 

Advance Notice of Proposed Rulemaking, Concept Release, and Request for Comment on 

Transfer Agent Regulations (“release”) to seek public comment regarding the Commission’s 

transfer agent rules. The first transfer agent rules were adopted in 1977 and remain essentially 

unchanged. At the same time, transfer agents now operate in a market structure that bears little 

resemblance to the structure in 1977. The release, noting the importance of transfer agents 

within the national market structure, includes a history of transfer agent services and applicable 

regulations as well as an overview of current transfer agent services and activities, and requests 

comment on all topics. The release includes an Advance Notice of Proposed Rulemaking in 

specific areas, such as transfer agent registration and reporting requirements, safeguarding of 

funds and securities, and revision of obsolete or outdated rules, along with requests for comment, 

as well as a Concept Release and Request for Comment addressing additional areas of specific 

Commission interest, including processing of book-entry securities, broker-dealer recordkeeping 

for beneficial owners, transfer agents to mutual funds, and administration of issuer plans. The 

Commission intends to consider the public’s comments in connection with any future 
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rulemaking, and comments to the Advance Notice of Proposed Rulemaking will be used to 

further consider the sufficiency and scope of the rulemaking proposals described therein. 

DATES: Comments must be in writing and received by [insert 60 days from date of publication 

in the Federal Register]

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/concept.shtml);

• Send an email to rule-comments@sec.gov. Please include File Number S7-27-15 on the 

subject line; or

• Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the 

instructions for submitting comments.

Paper Comments:

• Send paper comments to: Secretary, Securities and Exchange Commission, 100 F Street, 

NE, Washington, DC 20549-1090.

All submissions should refer to File Number S7-27-15. This file number should be included on 

the subject line if e-mail is used. 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 website (http://www.sec.gov/rules/concept.shtml). Comments are also available for 

website 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 10:00 a.m. and 3:00 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. 
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FOR FURTHER INFORMATION CONTACT: Moshe Rothman, Branch Chief, Thomas 

Etter, Special Counsel, Catherine Whiting, Special Counsel, Mark Saltzburg, Special Counsel, 

Lauren Sprague, Special Counsel, or Elizabeth de Boyrie, Counsel, Office of Clearance and 

Settlement, Division of Trading and Markets, Securities and Exchange Commission, 100 F 

Street, NE, Washington, DC 20549-7010 at (202) 551-5710.

SUPPLEMENTARY INFORMATION:

I. INTRODUCTION............................................................................................................. 6

II. THE NATIONAL CLEARANCE AND SETTLEMENT SYSTEM: HISTORY 

AND BACKGROUND.................................................................................................... 11

A. Transfer of Certificated Securities........................................................................ 11

B. Transfer Agent Processes For Transferring Certificated Securities ..................... 13

C. Paperwork Crisis of the 1960s.............................................................................. 17

1. Industry Responses (1968-1970)..................................................................... 19

2. Regulatory and Industry Responses (1971-1975) ........................................... 25

3. Advent of the Modern Clearance and Settlement System (1975-present) ...... 30

III. TRANSFER AGENT ROLE IN CLEARANCE AND SETTLEMENT PROCESSES

........................................................................................................................................... 36

A. Types of Security Ownership................................................................................ 36

1. Registered Securityholders.............................................................................. 36

2. Beneficial Owners ........................................................................................... 38

B. Clearance and Settlement Process ........................................................................ 40

IV. TRANSFER AGENT REGULATION: ORIGINS AND CURRENT STATUS...... 45

A. Federal Transfer Agent Rules............................................................................... 46

1. Registration and Annual Reporting Requirements.......................................... 49
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2. Processing, Reporting, Recordkeeping, and Exemptions: Rules 17Ad-1 

through 17Ad-7 and Rules 17f-1 and 17f-2.................................................... 54

3. Recordkeeping and Safeguarding Rules: Rules 17Ad-8 through 17Ad-13.... 64

4. Issue-Specific Rules: Rules 17Ad-14 Through 17Ad-21T............................. 72

B. Bank and Internal Revenue Service Regulations.................................................. 79

C. SRO Rules and Requirements Applicable to Transfer Agents............................. 83

1. NYSE Requirements........................................................................................ 83

2. DTC Requirements.......................................................................................... 86

D. Regulation of Transfer Agents Under State Law.................................................. 87

V. EVOLUTION OF RECORDKEEPING, TRANSFER, AND RELATED 

TRANSFER AGENT ACTIVITIES ............................................................................. 88

A. Recordkeeping, Transfer, Issuance, and Corporate Actions................................. 89

1. Recordkeeping: Rules 17Ad-9, 10, and 11...................................................... 89

2. Securities Transfers, Exchanges, and Conversions: Rules 17Ad-9, 10, 12, and 

19..................................................................................................................... 93

3. Securities Issuance: Rules 17Ad-1 and 2 ....................................................... 96

4. Corporate Actions and Related Services: Rules 17Ad-1, 6, 10, 12, and 13 ... 99

B. Annual Meeting, Proxy-Related Services, and Securityholder Services and 

Communications................................................................................................. 102

C. Regulatory Compliance and Reporting............................................................... 107

VI. ADVANCE NOTICE OF PROPOSED RULEMAKING......................................... 109

A. Registration and Annual Reporting Requirements............................................. 110

B. Written Agreements Between Transfer Agents and Issuers............................... 114

C. Safeguarding Funds and Securities..................................................................... 118

D. Restricted Securities and Compliance With Federal Securities Laws................ 127

E. Cybersecurity, Information Technology, and Related Issues............................. 135
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F. Definitions, Application, and Scope of Current Rules ....................................... 145

G. Conforming Amendments................................................................................... 150

VII. CONCEPT RELEASE AND ADDITIONAL REQUEST FOR COMMENT ........ 151

A. Processing of Book-Entry Securities.................................................................. 151

B. Bank and Broker-Dealer Recordkeeping For Beneficial Owners....................... 155

C. Transfer Agents to Mutual Funds....................................................................... 159

1. Key Characteristics of Mutual Fund Transfer Agents................................... 164

2. Increased Complexity.................................................................................... 170

3. Compliance and Other Services .................................................................... 175

4. Broker-Dealer Recordkeeping for Beneficial Owners Who Invest In Mutual 

Funds............................................................................................................. 177

5. Discussion and Request for Comment........................................................... 180

D. Crowdfunding ..................................................................................................... 187

E. Administration of Issuer Plans............................................................................ 190

1. Third Party Administrators............................................................................ 191

2. Issuer Plans.................................................................................................... 193

3. Potential Broker-Dealer Registration Issues.................................................. 195

4. Discussion and Request for Comment........................................................... 198

F. Outsourcing Activities and Non-Qualifying Securities Serviced by a Registered 

Transfer Agent .................................................................................................... 202

G. Additional Request for Comment ....................................................................... 205

***
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I. INTRODUCTION 

The United States’ securities markets are indispensable to this country’s and the world’s 

economy. The Commission believes that issuers, investors, and other participants in the 

securities markets must be served by a well-functioning national system for the clearance and 

settlement of securities transactions (“National C&S System”) that promotes safe, efficient, 

prompt, and accurate settlement transactions.

1

 Critical to this mission is the development and 

maintenance of a comprehensive regulatory program that governs the functions of transfer agents 

and related industry segments critical to the proper functioning of the National C&S System, 

including entities that clear trades, provide custodial and safeguarding services, and perform 

other “back-office” functions within the securities industry. 

As agents for issuers, transfer agents play a critical role with respect to securities 

settlement, though they rarely receive much public attention. Among their key functions, they 

may: (i) track, record, and maintain on behalf of issuers the official record of ownership of each 

issuer’s securities; (ii) cancel old certificates, issue new ones, and perform other processing and 

recordkeeping functions that facilitate the issuance, cancellation, and transfer of those securities; 

(iii) facilitate communications between issuers and registered securityholders; and (iv) make

dividend, principal, interest, and other distributions to securityholders. A transfer agent’s failure 

to perform its duties promptly, accurately, and safely can compromise the accuracy of an issuer’s 

securityholder records, disrupt the channels of communication between issuers and 

 

1 See infra Sections II and III of this release for additional discussion of the National C&S System.
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securityholders, disenfranchise investors, and expose issuers, investors, securities intermediaries, 

and the securities markets as a whole to significant financial loss.2

 

The securities markets and the National C&S System in which transfer agents operate 

have changed significantly since the Commission first began regulating transfer agents in the 

1970s. The changes largely reflect a decades-long evolution from a manual securities settlement 

process focused on the processing of physical securities certificates to a highly automated 

electronic environment centered on the processing and transfer of electronic book-entry 

securities.3 The changes also reflect significant technological and operational developments in 

other areas, as well as broader changes in the securities industry and the business and regulatory 

environments in which transfer agents operate. 

As a result, the Commission has observed over time that transfer agents now perform a 

more diverse array of functions and services, many of which may not be fully addressed by the 

Commission’s transfer agent rules. In addition, the Commission has observed that the manner in 

which transfer agents carry out their traditional functions may no longer be adequately addressed 

in the rules. The Commission’s consideration of these observations has led it to include two 

interrelated approaches in this release. Under the first approach, the Commission believes it has 

 

2 Maintenance of Accurate Securityholder Files and Safeguarding of Funds and Securities by Registered 

Transfer Agents, Exchange Act Release No. 19142, 2-3 (Oct. 15, 1982), 47 FR 47269 (Oct. 25, 1982) 

(“17Ad-9 through 13 Proposing Release”) (noting examples of substandard transfer agent performance 

presenting significant potential adverse consequences). See also Processing Requirements for Cancelled 

Security Certificates, Exchange Act Release No. 48931 (Dec. 16, 2003), 68 FR 74390, 74391 (Dec. 23, 

2003) (“17Ad-19 Adopting Release”) (noting examples of substandard transfer agent performance and 

significant adverse consequences).

3 Concept Release on Equity Market Structure, Exchange Act Release No. 61358, 2 (Jan. 14, 2010), 75 FR 

3594, 3594 (Jan. 21, 2010). When securities are referred to as being in “book-entry” form, it means that 

the investor does not receive a certificate. Instead, a custodian, usually a broker or transfer agent, maintains 

electronic records showing that the investor owns the particular security. For additional discussion of book 

entry securities, see infra note 37.
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identified a series of new and amended rules that, based on its current understanding of transfer 

agents and their functions, it intends to propose. These anticipated new and amended rules, 

which the Commission intends to propose as soon as is practicable, either individually or in 

groups or phases, and irrespective of any other changes to the transfer agent rules, are discussed 

in detail in the Advance Notice of Proposed Rulemaking found in Section VI. The Commission 

is soliciting public comment on the anticipated rulemaking proposals described in Section VI. 

Public feedback and data would assist the Commission in further refining and calibrating the

anticipated proposals as well as other potential proposals. 

Under the second approach, reflected in the Concept Release and Request for Comment

contained in Section VII, the Commission discusses and requests comment regarding a number 

of additional transfer agent issues that primarily arise from the diverse array of transfer agent 

functions and services which have developed over time. Public comment on these additional 

issues will allow the Commission to evaluate the need for, and potentially develop, additional 

rulemaking proposals appropriately tailored to these complex areas. In undertaking these 

approaches, the Commission remains sensitive to whether any distinctions between the actual 

activities of transfer agents and what is contemplated by the Commission’s rules may create 

undue uncertainty or risks for the National C&S System and the market participants that rely 

upon it, including investors, issuers, regulators, and transfer agents. As transfer agents continue 

to evolve in their roles and activities, any such distinctions, and the commensurate risks 

associated with them, may also grow. 

We begin with an overview of the antecedents, advent, and subsequent history of the 

National C&S System, including a discussion of the “Paperwork Crisis” which helped precipitate 

the legislative amendments that gave rise to that system. We then describe the National C&S 
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System and transfer agents’ role within that system as it functions today, followed by a 

discussion of the current regulatory regime and the core functions performed by transfer agents. 

The remainder of the release consists of the two sections noted above: the Advance Notice of

Proposed Rulemaking in Section VI and the Concept Release and Request for Comment in 

Section VII. 

We are mindful that the role of transfer agents in the National C&S System and the need 

to address specific risks associated with transfer agents have been topics of discussion and 

debate, both within and outside the Commission, for many years.4

 We intend for this release to 

build on those discussions and therefore invite comment on the full range of topics and issues 

associated with transfer agents and their activities, regardless of whether and in which section 

those topics and issues are specifically addressed. Thus, while we set forth specific requests for 

comments, we welcome comments on any concerns related to transfer agent activities, the 

transfer agent regulatory program, or other areas of concern that commentators may have. We 

specifically invite comment on any possible regulatory actions regarding the issues and concerns 

described, including potential new rules or rule amendments or other reasonable regulatory 

alternatives, as well as any related evidence, quantitative and/or qualitative, relating to a potential 

regulatory action. Comments received on either or both sections of the release will be 

considered in connection with any future rulemaking.

 

4 For example, in 2011 the Commission hosted a roundtable on the execution, clearance, and settlement of 

microcap securities which covered, among other topics, the role of transfer agents in the issuance and 

transfer of restricted securities. See transcript, available at

https://www.sec.gov/spotlight/microcap/microcaproundtable101711-transcript.txt. 
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We are also mindful that market developments have occurred beyond the changes that are 

the focus of this release and that affect transfer agents. For example, transfer agents and market 

participants now often communicate with one another using structured data on electronic 

platforms. Data standardization efforts have emerged to further enhance these electronic 

communication methods, such as the international standards effort focusing on corporate actions,

which may ultimately be used by transfer agents.

5

 Although these issues are not specifically 

addressed herein, comments on, and specific data about, any such developments are welcome.

The Commission is sensitive to the effects that could result from any regulatory action, 

and accordingly we also seek input on the economic effects or tradeoffs associated with any 

potential regulatory action, including any costs, benefits, or burdens of such action, and any 

effects on efficiency, competition, and capital formation. We are also mindful that the various 

aspects of the transfer agent regulatory program and securities transfer process that we address in 

this release are interconnected, and that changes to one aspect may affect other aspects, as well 

as complement or frustrate other potential changes. Therefore, we encourage the public to 

consider these relationships when formulating comments, and invite comment on whether 

alternative approaches, or a combination of approaches, would better address the concerns 

raised. 

 

5 See, e.g., XBLR: The Business Reporting Standards, https://www.xbrl.org/the-consortium/getinvolved/corporate-actions-working-group/.
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II. THE NATIONAL CLEARANCE AND SETTLEMENT SYSTEM: HISTORY 

AND BACKGROUND

A. Transfer of Certificated Securities

Investment securities confer certain intangible rights and benefits upon the holder.6 For 

example, the rights and benefits represented by a share of stock generally include the right to 

share in the capital and surplus of the corporation and receive certain other benefits and specified 

rights. Because securities confer intangible rights, historically the transfer of investment 

securities from one person to another has required special rules. In the past, the most common 

way to transfer investment securities, such as shares of stock, was to transfer a paper certificate 

that represents the benefits of ownership (“certificated security”).7

 Certificated securities have 

been issued in the United States since the 1700s8 and are evidence that the owner is registered on 

the books of the issuer (or its transfer agent) as a securityholder.

9

 Although the shares 

themselves represent an intangible right,10 the certificate is a negotiable instrument under state 

 

6 Egon Guttman, Modern Securities Transfers § 1:5 (4th ed. 2010). 

7 The Uniform Commercial Code (“UCC”) defines a “certificated security” as “a security that is represented 

by a certificate.” U.C.C. 8-102(a)(4). The UCC, which was first published in 1952, is a uniform act 

designed to standardize the law of sales and other commercial transactions in all 50 states. The UCC has 

the effect of law only when adopted by a state, and while it has been adopted by all 50 states, there are 

numerous state-by-state variations in the adopted texts.

8 The first major American issue of publicly traded securities occurred in 1790 when the federal government 

issued $80 million of bonds to refinance federal and state Revolutionary War debt. In 1792, five 

securities—two bank stocks and three government bonds—began trading on what was to become the New 

York Stock Exchange. For a historical discussion of the development of trading on the exchange, see

Teweles and Bradley, The Stock Market 95-119 (6th ed. 1992).

9 Guttman, supra note 6.

10 Id. 
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law, which allows the registered owner of the certificated security to transfer the bundle of 

intangible rights to a third party.11 

This ability to transfer the rights associated with share ownership helps drive the 

securities markets.12 Generally, under the UCC, “voluntary transfer of possession” is all that is 

required to effect such a transfer.13 But in order to qualify as a “protected purchaser” under the 

UCC, and therefore acquire an interest in the security free of any adverse claim, the buyer must 

give value, not have notice of any adverse claim to the security, and obtain control of it.14 Thus, 

for a buyer of registered certificated securities to achieve protected purchaser status, the 

voluntary transfer of possession could involve a significant amount of paperwork and manual 

processing, even in a direct transaction between a seller and a buyer: 

[E]ither the certificate or a stock power must be indorsed, 

the signature guaranteed, authority to transfer title 

documented, and the stock certificate and the other 

documentation delivered, not to mention the registration of 

transfer on the stockholders list, the destruction of the old 

certificate and the issue of a new one.15

 Historically, transactions involving certificated securities effected on securities 

exchanges could be significantly more complex: 

 

11 Id. at § 1:12. 

12 Generally, the UCC governs the transfer of securities. For further discussion of the UCC, see Section 

IV.D.

13 Guttman, supra note 6, at § 1.11, U.C.C. 1-201(b)(14). 

14 U.C.C. 8-303. “Control” over a registered security is achieved by obtaining control of the security indorsed 

to the holder or in blank, or if the issuer registers the holder in the securityholder list. See U.C.C. 8-106(b), 

off. cmts. 2-3.

15 David C. Donald, The Rise and Effects of the Indirect Holding System: How Corporate America Ceded Its 

Shareholders to Intermediaries 7 (Sept. 27, 2007), available at http://ssrn.com/abstract=1017206. 
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In sales and purchases by persons other than brokers and 

specialists, the owner of the security will instruct a broker 

to sell, the broker will transfer the order to the exchange 

floor/system or a market maker, where it will be matched 

wholly or partially with one or more buy orders. Once the 

order is executed, the seller will have to deliver the 

executed certificate(s) to his broker so that the selling 

broker can deliver it to the buying broker, market maker, 

specialist, or central counterparty. Once the buying broker 

receives delivery, she will have to deliver to the issuer’s 

transfer agent with a request for registration of transfer on 

the stockholder list. The latter, after inspecting all 

necessary documentation, will register the transfer, cancel 

the old certificate, and issue a new certificate to the buyer. 

Thus, beyond indorsement of the certificate and its 

delivery, each stage of the transaction will demand the 

documents, guarantees and assurances that constitute “good 

delivery” on the respective exchange.16

B. Transfer Agent Processes For Transferring Certificated Securities

Historically, from the transfer agent’s perspective, the transfer of certificated securities 

held by registered owners was a time-consuming manual process. First, the transfer agent would 

receive from the broker a bundle of documents (the “transfer bundle”) that typically included the 

following: (i) a “ticket” pinned to the bundle of documents that served as a transmittal letter and 

receipt;

17 (ii) transfer instructions telling the transfer agent what action to take; (iii) the security 

 

16 Id. at 7-8.

17 Historically, the term “ticket” referred to a broker-originated window ticket, which indicated the identity of 

the delivering broker, the securities, and the quantity. It would be prepared by a broker in triplicate and 

accompanied the transfer instructions and stock certificates when presented by the broker to the transfer 

agent for transfer. SEC, Study of Unsafe and Unsound Practices of Brokers and Dealers, H.R. Doc. No. 

92-231, at 182 n.32 (Dec. 1971) (“Unsafe Practices Study”). Today, a ticket may provide similar 

information, either in electronic form, or in a highly structured and standardized paper form capable of 

being scanned and converted to electronic form.
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certificates of the selling securityholder; (iv) a power of attorney;

18 and (v) a “guarantee,” 

typically affixed to the power of attorney or certificate, guaranteeing the genuineness of the 

signature of the selling securityholder indorsing the certificate over for transfer.

19

As an example of the extensive process for transferring certificated securities, prior to 

1975, for New York City transfer agents, nearly 90 percent of these transfer bundles were 

received from messengers at the transfer agent’s “window,” which was a physical drop-off 

location at the transfer agent’s offices, rather than through the mail, in which case the transfer 

bundles would be routed to the mail room.20 Upon receipt at the window, the transfer agent 

would perform a visual reconciliation to confirm that the number of securities shown on the 

ticket matched the number on the certificates. If the transfer agent found a difference, the 

transfer would be rejected as “out of balance” and returned to the broker, a process known as a 

“window rejection.”21 If no difference was found, the transfer agent would continue the process 

with a more detailed inspection, starting with a detailed review of signature guarantees, 

 

18 A power of attorney may also be referred to as a “stock power” (or “bond power” with respect to debt 

securities) and grants legal authority to the registered securityholder’s broker, to a transfer agent, or to 

another intermediary to transfer the securityholder’s securities ownership on behalf of the securityholder. 

A seller may use a power of attorney rather than indorse the assignment and transfer form on the back of 

the security certificate. For examples of forms of transfer and assignment (i) by stock power; (ii) by bond 

power; and (iii) by execution of the transfer and assignment form on the back of a security certificate, see

Mark S. Rhodes, Transfer of Stock app. A § 678.3041 at forms 1-3 (7th ed. Apr. 2015).

19 North American Rockwell Information Systems Company, Securities Industry Overview, Final Report to 

the American Stock Exchange 47 (1969) (“Rockwell Study”). 

20 It was estimated at the time that New York transfer agents only received approximately 10 percent of 

certificates by U.S. mail. The pattern was the opposite for transfer agents outside of New York, which 

were estimated to receive the vast majority of certificates for transfer through the mail. Id. at 51.

21 Id. at 47-52.
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indorsements,

22 and attachments in order to determine if the certificates were in “good order” for 

transfer.23 If the transfer agent found a deficiency, it would attach a rejection sheet to the 

certificate in question and return it to the broker, a process referred to as an “examination

rejection.”24 If the certificates were found to be in good order, the transfer agent would perform 

“stop checking,” the process of verifying each certificate number against a file it maintained 

listing certificates reported stolen, missing,

25 or with “stop transfers” or legal holds.26

 

22 Transfer agents may have reviewed indorsements but generally did not maintain signature cards for each 

registered securityholder or otherwise verify authenticity of the signature by comparing it to specimen 

signatures. Rather, the signature guarantee provided by the broker was intended to provide assurance 

concerning the authenticity of the seller’s signature. Today, the signature guarantee process has been 

enhanced and standardized through non-governmental Medallion guarantee programs. For additional 

information regarding Medallion guarantees, see infra note 267.

23 Rockwell Study, supra note 19, at 53.

24 It was estimated that, in the mid- to late-1960s, window rejections were as high as 20 percent and 

examination rejections were as high as 30 percent. Id.

25 Id. Today, there is a national system operated by the Securities Information Center (“SIC”) as the 

Commission’s designee for maintaining a database concerning missing, lost, counterfeit, and stolen 

securities that “reporting institutions” (brokers, dealers, registered transfer agents, certain types of banks, 

and others) report information to and inquire into concerning the status of securities certificates. See

Exchange Act Rule 17f-1, 17 CFR 240.17f-1. However, transfer agents still maintain their own lists of 

securities subject to stop transfers. For additional discussion of reporting requirements for lost and stolen 

securities, see infra Sections IV.A.1 and IV.A.2. 

26 A “stop transfer” or a “stop order” is a demand made by a registered securityholder to an issuer that a 

security should not be transferred without the securityholder having an opportunity to assert a claim to the 

security, typically because the security has been destroyed, lost, or stolen. See U.C.C. 8-403; Guttman, 

supra note 6, at § B:11, form 62 (providing a form of stop transfer notice). Under U.C.C. 8-403, an 

owner’s notification that a security certificate has been lost constitutes a demand that the issuer not register 

transfer. U.C.C. 8-403, cmt. 2 (2005). If, after a stop transfer demand has become effective, a certificated 

security in registered form is presented to an issuer with a request to register transfer (or an instruction is 

presented to an issuer with a request to register transfer of an uncertificated security), the issuer must 

promptly provide a notice with certain information to both the person who made the stop transfer demand 

and the person seeking to transfer the security. See U.C.C. 8-403(b). When a security has been destroyed, 

lost, stolen, or is otherwise missing, in addition to providing a stop transfer notice, a registered 

securityholder commonly will seek to replace the security. The process of replacement is described in 

detail infra in Section IV.A.2.
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The next step was to prepare the transfer journal entries documenting the cancellation of 

the old certificate and the issuance of the new certificate.27 Entering information into the transfer 

journal was considered the most time consuming part of the transfer process because it was a 

manual process, requiring gathering discrete pieces of information from different documents in 

the transfer bundle.28 Concurrently, the transfer agent would cancel the old certificate and 

prepare a new certificate from the supply of blank certificates the transfer agent kept on hand.

29 

Prior to sending certificates to a registrar, the transfer agent’s staff would perform several 

audits to verify the accuracy of the transfer journal and new certificate.30 After completion of 

these audits, the transfer agent would send the certificates to a registrar, which would perform an 

additional audit or quality control check primarily focused on verification that the share 

quantities on the cancelled certificates and newly issued certificates matched and that the new 

certificates were not issued in a manner resulting in an overissuance.

31 If the registrar was 

independent of the transfer agent, as historically required by certain stock exchange rules, the 

transfer agent would remove the window tickets from batches of securities to be sent to the 

 

27 This record may also be referred to as a “transfer blotter,” or a “transfer log,” among other terms. As used 

throughout this release, we refer to it as a “transfer journal.” A transfer journal is a continuous record of the 

transfer of ownership of securities, including the identity of the party presenting the item for transfer, 

whether the transfer was completed, and to whom the securities were made available

28 Rockwell Study, supra note 19, at 53.

29 Id. at 53-54, 57. These blank certificates typically would have been ordered by a corporate officer of the 

issuer and been engraved by a bank note company before being delivered to the transfer agent. The 

engraving was both aesthetic and a security feature designed to prevent counterfeiting. Id. at 100. To 

avoid trading interruptions caused by running out of certificates, transfer agents had to carefully forecast 

certificate demand and monitor their inventory of blank certificates. Id. Today, it is the understanding of 

the Commission’s staff that some certificates may not be engraved but are produced by transfer agents 

through “print-on-demand” services. 

30 Id. at 53. For additional discussion of the registrar function, see, e.g., infra Section II.C.1

31 Id. at 53-54. For more information regarding overissuances, see infra note 235 and accompanying text.
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registrar, sequence the batches of old and new certificates separately by security issue, and send 

the bundles by messenger to the registrar, typically overnight.32 The registrar would perform the 

audit described above, countersign the new certificates,33 and then return them to the transfer 

agent.34 The transfer agent would then need to reorganize the certificates and reattach them to 

their window tickets before sending the new certificates and accompanying documents to the 

designated receiving party, usually by messenger.35

In 1977, the concept of the “uncertificated security” was introduced in Article 8 of the 

UCC.36 This innovation allowed issuers to issue uncertificated (i.e., certificateless) book-entry

securities, the transfer of which is greatly simplified compared to the transfer of certificated 

securities because transfer can be effected and protected purchaser status can be achieved by 

simply registering the transferee’s name on the books of the issuer.37 

C. Paperwork Crisis of the 1960s

Prior to 1968, individual clearing brokers38 found it necessary to maintain a relationship 

with a separate clearing agency for each securities exchange.39 In the over-the-counter (“OTC”) 

 

32 Id. at 53.

33 Before the new certificate would be sent out to the designated receiving party, the transfer agent would also 

countersign the new certificate. Thus, new certificates typically would include the signature of an officer of 

the issuer and countersignatures by the transfer agent and registrar.

34 Rockwell Study, supra note 19, at 53.

35 Id. 

36 See U.C.C. 8-102(a)(18) (defining new term uncertificated security as “a security that is not represented by 

a certificate”); U.C.C. 8-101 (citing “Reasons for 1977 Change,” and introducing the subject of 

uncertificated securities). See also Egon Guttman, Toward the Uncertificated Security: A Congressional 

Leap for States to Follow, 37 Wash. & Lee L. Rev. 717, 729-32 (1980). 

37 Guttman, supra note 6, at § 6:4. Book-entry securities are discussed in more detail throughout the release, 

including in Sections III.A and VII.A.

38 For further information on introducing and clearing brokers, see Figure 1 and accompanying text, infra.
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market,40 most securities transactions were settled without going through a clearing agency or 

were cleared by small user-owned clearing corporations. In either instance, brokers had to settle 

most transactions by physical delivery or receipt of certificates, and had to maintain an office or 

establish a correspondent relationship with an entity with an office near the clearing agency. 

As trading volume increased throughout the 1960s and early 1970s, the burdensome 

manual process associated with transferring certificated securities created what came to be 

known as the Paperwork Crisis. It was, at the time, “the most prolonged and severe crisis in the 

securities industry”41 since the Great Depression and to this day is one of the largest challenges 

the U.S. securities markets have faced. The manual settlement processes for certificated 

securities could not keep up with increasing trading volumes, deliveries to customers of both 

cash and securities were frequently late, and stock certificates were lost in the rising tide of 

paper. The substandard performance of transfer agents was “a significant contributing factor” to 

 

39 A clearing agency may be referred to as a clearing corporation or a depository, depending on its functions. 

Clearing corporations typically compare member transactions, clear, net and settle trades, and provide risk 

management services, such as trade guarantees. Depositories immobilize securities by holding them on 

deposit for their participants and effect transfers of interests in those securities through book-entry credits 

and debits of participants’ accounts at the depository. For additional discussion, see infra Section III. See 

also, e.g., Exchange Act Section 3(a)(23)(A), 15 U.S.C. 78c(a)(23)(A) (defining the term “clearing 

agency”); Clearing Agencies, SEC, https://www.sec.gov/divisions/marketreg/mrclearing.shtml (last visited 

Nov. 25, 2015). Currently, DTC is both the only CSD in the United States and the only CSD registered 

with the Commission as a clearing agency. See Exchange Act Section 3(a)(23)(A), 15 U.S.C. 

78c(a)(23)(A) (requiring CSDs to register with the Commission as a clearing agency). 

40 The term “OTC” refers generally to securities that are not listed on a national securities exchange. Many 

equity securities, corporate bonds, municipal securities, government securities, and certain derivative 

products are traded in the OTC market. The OTC Bulletin Board (“OTCBB”), which is a facility of 

FINRA, for example, is an electronic inter-dealer quotation system that displays quotes, last-sale prices, 

and volume information for many securities that are not listed on a national securities exchange, including 

domestic, foreign and American depository receipts (ADRs). For additional discussion, see, e.g., Over the 

Counter Market, SEC, https://www.sec.gov/divisions/marketreg/mrotc.shtml (last visited Nov. 20, 2015).

41 Unsafe Practices Study, supra note 17 at 1. 
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the Paperwork Crisis.42 At times during 1967 and 1968, the New York Stock Exchange 

(“NYSE”) closed early on some days and during a substantial portion of 1968 closed entirely on 

Wednesdays to attempt to allow the brokerages and other firms to keep up with the volume.43

In the immediate aftermath of the Paperwork Crisis, more than 100 broker-dealers went 

bankrupt or were acquired by other firms and “[t]he inability of the securities industry to deal 

with its serious operational problems . . . contributed greatly to the loss of investor confidence in 

the efficiency and safety of [the U.S.] capital markets.”44 However, other consequences of the 

Paperwork Crisis were deeper and longer lasting. As discussed below, over the next years and 

decades, Congress, federal and state regulators, and industry participants, including brokers, 

dealers, banks, and securities exchanges, worked together to drastically reshape critical 

operational aspects of the securities industry, ultimately leading to major revisions to both 

federal and state securities laws, and the advent of the modern national market system and 

National C&S System as they exist today. 

1. Industry Responses (1968-1970)

Formation of the Central Certificate Service (1968)

In immediate response to the Paperwork Crisis, regulators and industry participants 

studied and adopted alternative settlement systems and other potential options which might 

 

42 Id. at 37-8. 

43 Id. at 219, n. 4. See also New York Stock Exchange, Inc., Crisis in the Securities Industry, A Chronology: 

1967-1970 10-16 (1971) (report prepared for the Subcommittee on Commerce and Finance of the 

Committee on Interstate and Foreign Commerce of the U.S. House of Representatives).

44 S. Rep. No. 94-75, at 3-4 (1975) (“Senate Report on Securities Act Amendments of 1975”) (report prepared 

by the Senate Committee on Banking, Housing, and Urban Affairs on the Securities Act Amendments of 

1975). For additional information about the Paperwork Crisis, see also Unsafe Practices Study, supra note 

17, at 13-30; Securities Transaction Settlement Concept Release, Exchange Act Release No. 49405 (Mar. 

11, 2004), 69 FR 12922 (Mar. 18, 2004).
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reduce or eliminate the problems associated with the traditional process for transferring 

certificated securities. First, in June 1968, the NYSE established the Central Certificate Service 

(“CCS”) as a division of the Stock Clearing Corporation. Broker-dealers and banks who were 

members of the NYSE were permitted to deposit their certificated securities with CCS, which 

would hold the certificates in custody and transfer them into the name of a CCS nominee.

45 The 

certificated securities deposited by that member would be represented by an appropriate bookentry credit reflected in that member’s account at CCS. Because all securities held by CCS were 

registered in its nominee’s name, deliveries of securities between CCS members could be 

effected by appropriate credits and debits to the members’ securities accounts rather than by 

physical delivery of certificates. In this manner members’ accounts would be debited and 

credited to reflect transactions among them, but the registered owner of the securities – CCS’s 

nominee – would never change. Movement of certificates was thus eliminated, resulting in their

“immobilization.”46 At the time, CCS was the most prominent example of the central securities 

depository model discussed below in Section II.B.2. In 1970, CCS opened its services to 

 

45 Unsafe Practices Study, supra note 17, at 184. The registration of securities into the name of a nominee 

rather than the name of the investor is commonly referred to as “street name” registration, which stands for 

“Wall Street name.” See The Stock Market, supra note 8, at 249-251, 307. A nominee is usually a 

partnership formed exclusively to act as the record holder of securities and thereby to facilitate their 

transfer. See Preliminary Report of the Securities and Exchange Commission on the Practice of Recording 

the Ownership of Securities in the Records of the Issuer in Other than the Name of the Beneficial Owner of 

Such Securities 2-15 (Dec. 4, 1975) (“Preliminary Street Name Study”) (providing extensive discussion of 

the history of the practice of nominees and street name ownership, the scope of the practice, the concept of 

beneficial ownership and then-current practices). For further discussion of registered ownership and street 

name ownership (or beneficial ownership), see infra Section III.A. See also infra note 87, regarding DTC’s 

nominee, Cede & Co. 

46 Unsafe Practices Study, supra note 17, at 184.
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members of the American Stock Exchange,

47 and in 1973 CCS changed its name to the 

Depository Trust Company (“DTC”).48

Rockwell Study (1969)

Around the same time, the American Stock Exchange hired the North American 

Rockwell Information Systems Company to study and appraise the securities industry’s 

operations. In 1969, it produced the Rockwell Study. Among other things, the Rockwell Study 

found that the securities industry’s operations were unnecessarily complicated and had not kept 

pace with technology and recommended that the actual physical movement of securities be 

reduced.49 

To address unnecessary complexity, for example, the Rockwell Study focused on 

whether more efficient clearance and settlement of securities could be achieved by allowing 

single entities to perform both registrar and transfer agent functions. If so, the entity would need 

to function in a way that still would preserve the independent audit and shareholder protection 

function that a registrar historically was viewed, by many participants in the securities industry,

as providing.50 However, at the time when the Commission adopted the majority of its transfer 

 

47 The American Stock Exchange, a major New York securities exchange founded in 1908, operated for a 

century before being acquired by the New York Stock Exchange and ceasing operations as an independent 

entity in 2008. 

48 For further discussion of DTC, see infra Sections II.C.3, III.B, IV.C.2.

49 Rockwell Study, supra note 19. 

50 See, e.g., Rockwell Study, supra note 19, at 101. 
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agent rules in 1977 and 1983, independent registrars were still present in the marketplace and 

indeed were required by the NYSE until 1984.51

To reduce the physical movement of securities, the Rockwell Study recommended the 

establishment of individual transfer agent depositories (“TADs”), which was, at the time, a 

theoretical proposal that had not been implemented in any market.52 As proposed, the TAD

model would have established a national clearing system together with a decentralized network 

of individual transfer agent depositories. Securityholders would immobilize their certificated 

securities by depositing them for custody with the transfer agent for the issuer, effectively 

making each transfer agent an independent depository for its respective issuers. The transfer 

agent would maintain the issuer’s register, or records of registered shareholders, in electronic 

form on behalf of the issuer and would settle transactions by debiting and crediting the securities 

accounts of the respective parties to the transaction on the issuer’s register instead of delivering 

physical certificates.53 Thus, the account on which transfers took place would also be the 

issuer’s register, which would allow transfers to be effected by simply removing the seller’s 

name from the register (i.e., debiting the seller’s securities account) and adding the buyer’s name 

(i.e., crediting the buyer’s securities account). The national clearing system proposed under the 

TAD model would settle all securities transactions, both exchange and OTC trades, by receiving 

 

51 However, at that time, the American Stock Exchange did not require an independent registrar. Rockwell 

Study, supra note 19, at 101. In 1984, the Commission issued an order that approved an NYSE rule change 

that eliminated the requirement to use a separate transfer agent and registrar, subject to certain conditions. 

Securities Exchange Act Release No. 21499 (Nov. 19, 1984) (File No. SR-NYSE-84-33). 

52 Rockwell Study, supra note 19, at 3, 9, 14, 31, 39, 43, 77, 98.

53 Rockwell Study, supra note 19, at 39-43. 
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the compared trades54 directly from the floor of the exchange and receiving OTC trades by 

messenger or other delivery service.55 Compared trades would then be transmitted to the 

appropriate TAD, where, as noted above, the respective accounts of the parties would be credited 

and debited.56 As with the CCS system established by the NYSE, the movement of certificates 

would be eliminated, resulting in their immobilization.

Arthur Little Study (1969)

From July 1968 to April 1969, Arthur D. Little & Co. conducted a study for the National 

Association of Securities Dealers (“NASD”) on the problem of settlement fails,

57 titled, “The 

Multiple Causes of Fails in Stock Clearing in the United States With Particular Emphasis in 

Over-The-Counter Securities” (“Arthur Little Study”). Among other things, the Arthur Little 

Study compared the performance of two different types of clearing systems: (a) the “balance 

order system” used by the New York, American, and National OTC Clearing Corporations, and 

(b) the “net by net” or “continuous netting system” used by the Pacific Coast Stock Clearing 

Corporation and the Midwest Stock Exchange Clearing Corporation.58 The study showed that 

 

54 Trade comparison, resulting in a compared trade, is the post-execution act of matching the two sides of a 

trade and confirming the existence of a contract and the trade’s exact terms (security, parties, time of trade, 

number of units, and price), usually by the exchange. It is generally regarded as the first step in the 

clearance and settlement process. See The October 1987 Market Break, A Report by the Division of 

Market Regulation, 10-2, 10-4 (1988) (“October 1987 Market Break Report”).

55 Unsafe Practices Study, supra note 17, at 180. 

56 Id. 

57 A settlement fail occurs if a seller does not deliver securities or a buyer does not deliver funds owed by the 

settlement date. 

58 See Arthur D. Little, Inc., The Multiple Causes of Fails in Stock Clearing in the United States 2414, 21-22 

(“Arthur Little Study”). In the balance order system, after comparing the trades completed for the day by 

each clearing corporation participant, the clearing corporation would net each participant’s trades in each 

security and issue orders for the net sellers to deliver, and the net buyers to receive, specific amounts of 

securities at the established settlement price directly from other participants. The duty to deliver and the 
Page 24 of 208

the balance order system could reduce securities movement by approximately 25 percent and the 

continuous netting system could result in a 50 percent reduction.

59 The Arthur Little Study, 

along with the NASD, concluded that the best nationwide clearance and settlement system would 

be one consisting of interconnected regional clearing centers, each using the net by net (or 

continuous net settlement) system.60 

Formation of the National Clearing Corporation (1969) 

In December 1969, the NASD formed the National Clearing Corporation (“NCC”) as the 

vehicle for developing and implementing a nationwide system of interconnected regional 

clearinghouses that would form a national OTC clearing system utilizing continuous net 

settlement. NCC took over the operations of the National Over-the-Counter Clearing 

Corporation and eventually grew to include OTC transactions in all issues listed on exchanges or 

included on the NASDAQ system.61 In 1977, NCC merged with the clearing facilities of both 

the NYSE and the American Stock Exchange to form the National Securities Clearing 

 

duty to receive would be allocated in such a way that, for each issue traded, the net seller would have to 

make only one delivery and the net buyer would receive only one delivery, which could result in 

participants receiving from or delivering to other participants with whom they did not transact that day. In 

the net by net (or continuous net settlement system), each of the participant’s trades in every security were 

netted for that day, so that each participant would be either a net seller or a net buyer for a particular 

security, and the duty to deliver the net sales or receive the net purchase would be added to any outstanding 

deliver or receive obligations of that participant in that security. In addition, all deliveries and receipts 

would be made to or from the clearing corporation, rather than between other participants, as in the balance 

order system. Unsafe Practices Study, supra note 17, at 167 n.6.

59 Unsafe Practices Study, supra note 17, at 167 n.6, 172.

60 Id. at 174-5.

61 NASDAQ stands for National Association of Securities Dealers Automated Quotations and was founded in 

1971 by the NASD as an electronic quotation system. It later developed into an electronic stock market, 

primarily focused on the OTC market and today is registered with the Commission as a national securities 

exchange under Section 6 of the Exchange Act. See Exchange Act Section 6, 15 U.S.C. 78f; Teweles, 

supra note 8, at 4-5, 371-2.
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Corporation (“NSCC”). The new entity provided clearing, settlement, risk management, and 

other services, including continuous net settlement of trades and payments, to its participants.

BASIC Study (1970)

In early 1970, around the same time that CCS extended its services to the American 

Stock Exchange, the Banking and Securities Industry Committee (“BASIC”) was formed by 

banking and securities industry participants to find solutions to problems affecting both those 

industries.

62 After more than a year of review and analysis, BASIC advocated the 

immobilization of securities certificates through a “Central Securities Depository System for the 

entire securities industry comprised of regional depositories with an inter-connection between 

the depositories.”63 There was also agreement that “the certificate must be eliminated, but that 

this will take time.”64

2. Regulatory and Industry Responses (1971-1975)

Unsafe Practices Study (1971)

In 1970, Congress enacted the Securities Investor Protection Act of 1970 which 

established the Securities Investor Protection Corporation for the broad purpose of affording 

financial protection for the customers of registered brokers and dealers.65 The act also directed 

the Commission to conduct a study into the causes and potential responses to the Paperwork 

 

62 BASIC was formed in March 1970 as an outgrowth of a joint committee established between 

representatives of the securities and banking industries in 1968. BASIC was sponsored by the NYSE and 

American Stock Exchange, the NASD, and the 11 New York Clearing House banks. Securities Industry 

Study, H.R. Rep. No. 92-1519, 64 (1972) (“Securities Industry Study”).

63 Unsafe Practices Study, supra note 17, at 171. See also id. at 184-188. 

64 Id. at 173. 

65 The Securities Investor Protection Act of 1970, Pub. L. No. 91-598, 84 Stat. 1636 (Dec. 30, 1970), 15 

U.S.C. 78aaa; S. Rep. No. 91-1218 (1970) (Report to Accompany S. 2348).
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Crisis.66 In response, the Commission held meetings, a conference, and hearings that included 

participation by market participants and federal bank regulators to identify and correct 

operational and financial problems in the securities industry, and then produced the Unsafe 

Practices Study.67 The Unsafe Practices Study in part concluded that the inherent inefficiencies 

and risks associated with the processing of physical securities certificates contributed to the 

Paperwork Crisis, and it was therefore necessary to reduce the amount of paperwork connected 

with securities transfers.68 There was disagreement, however, regarding the best way to 

accomplish this goal. 

Although it was generally recognized at the time that the complete elimination of 

certificated securities, known as “dematerialization,” was the best approach to eliminating the 

risks associated with the processing of physical securities, due to technological and legal 

impediments, dematerialization was viewed as a “utopian solution” that “would require very 

extensive legal work and lead time to implement.”69 Indeed, as noted above, two of the leading 

proposed securities settlement models designed to reduce the amount of paperwork being 

discussed at that time – the central depository system represented by CCS and the TAD system –

would have resulted in the immobilization of securities rather than dematerialization, and 

 

66 15 U.S.C. 78kkk(g). See also Unsafe Practices Study, supra note 17, at 11. 

67 See Unsafe Practices Study, supra note 17, at 31 (discussing a meeting of major SROs to discuss 

operational capacity in the securities industry, a conference on the stock certificate, a series of meetings 

with federal bank regulators regarding the regulation and performance of transfer agents, and hearings 

concerning restructuring of the securities markets). 

68 Id. at 28.

69 Id. at 173, 194-95. For example, Delaware did not permit the issuance of “certificateless stock” until 

Section 158 of the Delaware General Corporation Law was amended in 1983. See Welch, Turezyn, and 

Saunders, Folk on the Delaware General Corporation Law §158.4 (5th ed. 2013).
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therefore were viewed as “interim measures for efficient operations” that could be taken

immediately but would also “serve as building blocks for that ultimate objective” of 

dematerialization.70 

While there was widespread industry support for the TAD model, there were legal and 

technological impediments to its immediate implementation.71 In contrast, the central depository 

system model had already been established on a limited basis as the CCS established by NYSE, 

although it had not been implemented on a national basis. The proposal being discussed at the 

time would use CCS as a starting point and gradually expand it into a New York central 

securities depository that would link to similar regional depositories of other major financial 

centers, thus resulting in each depository having an account at the others.72 This would allow 

members of one depository to transact with members of, and effect the delivery of securities via, 

the other depositories.

73 Under this approach, no one depository would be restricted solely to the 

specific members or securities listed on a particular exchange. Like the TAD, this approach 

resulted in immobilization rather than dematerialization, but instead of a decentralized network 

of transfer agents acting as individual depositories for issuers, all paper securities certificates for 

all issuers would be deposited into one or more central pools and kept in custody by such central 

depositories. Under this model, the more certificates deposited into a central depository, the 

more efficient the system would be.

 

70 Unsafe Practices Study, supra note 17, at 173. 

71 Unsafe Practices Study, supra note 17, at 173, 183-4, 194-5. 

72 Unsafe Practices Study, supra note 17, at 184-5.

73 Id. at 185.
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Securities Industry Study (1973)

Following publication of the Commission’s Unsafe Practices Study, the Senate 

Subcommittee on Securities conducted its own 18-month study, which resulted in the Securities 

Industry Study of 1973 Report (“Securities Industry Study”).74 The Securities Industry Study 

found “two primary functional causes” for the Paperwork Crisis: (i) the securities industry had 

failed to develop a nationwide system for clearance and settlement of securities transactions; and 

(ii) there existed a lack of uniformity and coordination among the various methods of clearing 

and settlement in use. The Securities Industry Study’s recommendations included the following: 

(i) that the Securities Exchange Act of 1934 (“Exchange Act”) be amended to “make it clear” 

that the Commission has the “power and the responsibility to direct the evolution of clearance 

and settlement methods employed by the national securities associations and by broker-dealers 

engaged in interstate commerce;” (ii) that legislation should “requir[e] clearing agencies and 

depositories to register with and report to the SEC and empower the Commission to review and 

amend the rules of such entities;” (iii) that “the Commission be directed to proceed with dispatch 

toward elimination of the stock certificate as a means of settlement between broker-dealers...”; 

and (iv) that “the Commission be directed to consider the practice of registering securities in 

‘street name....’”75

 

74 Securities Industry Study, supra note 62. 

75 Id. at 40. 
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1975 Amendments

The Securities Industry Study ultimately led to Congress enacting the Securities Act 

Amendments of 1975 (“1975 Amendments”),

76 which made sweeping changes to the federal 

securities laws, implemented many of the principal recommendations from the Securities 

Industry Study, and established both the national market system77 and the National C&S System

as they exist today.78 In particular, in the new statute, Congress directed the Commission to, 

among other things: (i) “facilitate the establishment of a national system for the prompt and 

accurate clearance and settlement of transactions in securities;”79 (ii) “end the physical 

movement of securities certificates in connection with the settlement among brokers and dealers 

of transactions in securities;”80 and (iii) establish a system for reporting missing, lost, counterfeit, 

and stolen securities.81

 

76 Securities Acts Amendments of 1975, Pub. L. No. 94-29, 89 Stat. 97 (1975). See also S. Rep. No. 75, at 7 

(1975).

77 Section 11A of the Exchange Act directed the Commission to facilitate the establishment of a national 

market system to link together the multiple individual markets that trade securities and achieve the 

objectives of efficient, competitive, fair, and orderly markets, that are in the public interest, and protect 

investors. See Exchange Act Section 11A(a)(2), 15 U.S.C. 78k-1(a)(2).

78 See Exchange Act Section 17A(a)(2), 15 U.S.C. 78q-1(a)(2). For legislative history concerning Section 

17A, see, e.g., S. Rep. No. 75, at 4 (1975); H.R. Rep. No. 229, at 102 (1975).

79 Exchange Act Section 17A(a)(2)(A)(1), 15 U.S.C. 78q-1(a)(2)(A)(1). For legislative history concerning 

Section 17A, see supra note 80. 

80 Exchange Act Section 17A(e), 15 U.S.C. 78q-1(e). 

81 Exchange Act Section 17(f)(1), 15 U.S.C. 78q(f)(1). 
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3. Advent of the Modern Clearance and Settlement System (1975-

present)

Early Proliferation of Clearing Agencies

Between 1968 and 1975, in addition to CCS (now known as DTC), several other 

securities depositories were established, including by the Midwest Stock Exchange, Inc., the 

Pacific Stock Exchange, and TAD Depository Corporation. The number of shares evidenced by 

certificates immobilized in depositories increased between 1968 and 1976 from approximately 

400 million to over 4 billion.

82 On November 3, 1975, pursuant to its new authority and 

directives under the 1975 Amendments, the Commission adopted Rule 17Ab2-1(c)(1) and Form 

CA-1 for the registration of clearing agencies, including central securities depositories.83 Later 

in 1975, the Commission granted temporary registrations as clearing agencies to nine entities,

that were either clearing corporations or securities depositories.

84 Shortly after NSCC was 

formed in 1977 through the merger of NCC and the clearing facilities of the NYSE and 

American Stock Exchange, NSCC also sought, and was granted, temporary registration as a 

clearing corporation. The Commission also granted temporary registrations as a clearing 

 

82 Final Report of the Securities and Exchange Commission on the Practice of Recording the Ownership of 

Securities in the Records of the Issuer in Other than the Name of the Beneficial Owner of Such Securities 

55 (Dec. 3, 1976) (“Final Street Name Study”).

83 See Exchange Act Rule 17Ab2-1(c)(1), 17 CFR 240.17Ab2-1(c)(1); Exchange Act Form CA-1, 17 CFR 

249b.200. 

84 The nine entities granted temporary registrations as clearing agencies were: (i) DTC; (ii) Bradford 

Securities Processing Services; (iii) Stock Clearing Corporation of Philadelphia; (iv) Midwest Securities 

Trust Company; (v) Options Clearing Corporation; (vi) Midwest Clearing Corporation; (vii) Pacific 

Securities Depository Trust Company; (viii) Boston Stock Exchange Clearing Corporation; and (ix) TAD 

Depository. 
Page 31 of 208

corporation to the New England Securities Depository Trust Company and the Philadelphia 

Depository Trust Company in 1976 and 1979, respectively.

85

Advances in Technology (1976-present)

Over the next several decades, factors such as technology enhancements and regulatory 

changes led to the increased prevalence of securities depositories, and many of them

substantially expanded their services and participant base, especially DTC. Of particular note, in 

1975, DTC introduced the Fast Automated Securities Transfer (“FAST”) Program, which was 

approved by the Commission in 1976.86 Among other things, it reduced the costs and risks 

associated with moving street name securities between DTC and participants.

Prior to FAST, transferring securities to or from DTC on behalf of its participants 

required moving certificated securities back and forth between DTC and transfer agents. For 

securities being deposited with DTC, participants would send certificates to DTC, which would 

then send the certificates to the transfer agent for re-registration into the name of DTC’s 

partnership nominee, Cede & Co.,87 before returning the reregistered certificates to DTC. For 

securities being withdrawn from DTC, DTC would send the certificates registered in the name of 

 

85 For more information regarding clearing agency registration standards and the history of those standards, 

see Regulation of Clearing Agencies, Exchange Act Release No. 16900 (June 17, 1980), 45 FR 41920 

(June 23, 1980). 

86 Securities Exchange Act Release No. 12353 (Apr. 20, 1976), 41 FR 17823 (Apr. 28, 1976) (File No. SRDTC-76-3). The FAST Program was introduced in 1976 with ten transfer agents and 400 securities issues. 

See Securities Exchange Act Release No. 55816, 3 n.5 (May 25, 2007), 71 FR 30648 (June 1, 2007) (File 

No. SR-DTC-2006-16). By the end of 1984, 64 transfer agents held balance certificates valued at $580 

billion in 11,442 securities issues. See The Depository Trust Company Annual Report 1984, at 16 (“DTC 

Annual Report”).

87 The name Cede & Co. was drawn from the term “certificate depository” and it was formed as a partnership 

partly because it was considered simpler to effect a transfer of securities registered in the name of a 

partnership nominee than in the name of a corporation. For more information about Cede & Co., including 

regarding the terms of its partnership agreement, see S. Rep. No. 93-62 (1974) (“Disclosure of Corporate 

Ownership”).
Page 32 of 208

Cede & Co. to the transfer agent for re-registration into the name designated by the withdrawing 

participant, and the transfer agent then returned to DTC both the reregistered certificate (which 

DTC would then deliver to the withdrawing participant or other entity designated by the 

participant) and a separate certificate registered in the name of Cede & Co. representing the 

remainder of DTC’s position.88 

The FAST Program substantially reduced the movement of paper certificates by 

permitting transfer agents to become custodians for balance certificates registered in the name of 

Cede & Co. The balance certificate represents on the transfer agent’s books the sum total of 

shares for that issue held by all of DTC’s participants.89 Participants maintain corresponding 

books representing their securityholder accounts held in street name. Then, when securities are 

deposited into or withdrawn from DTC, FAST transfer agents adjust the denomination of the 

balance certificates and electronically confirm the changes with DTC on a daily basis, with the 

corresponding participant accounts adjusted accordingly by DTC.90 

In 1983, DTC adopted technological enhancements to its Participant Terminal System 

which allowed participants to automatically match book-entry receive notifications and facilitate 

redelivery to other participants.91 DTC also partnered with NSCC to provide an Institutional 

 

88 Securities Exchange Act Release No. 60196 (June 30, 2009), 74 FR 33496 (July 13, 2009) (File No. SRDTC-2006-16). 

89 Id. at 2-3. 

90 Id. For a description of early DTC rules relating to FAST, see Securities Exchange Act Release No. 13342 

(Mar. 8, 1977) (File No. SR-DTC-76-3); Securities Exchange Act Release No. 14997 (July 26, 1978) (File 

No. SR-DTC-84-4); Securities Exchange Act Release No. 21401 (Oct. 16, 1984) (File No. SR-DTC-84-8; 

Securities Exchange Act Release No. 31941 (Mar. 3, 1993) (File No. SR-DTC-92-15); Securities Exchange 

Act Release No. 46956 (Dec. 6, 2002) (File No. SR-DTC-2002-15).

91 For discussion of “Dual Host PTS,” see DTC Annual Report, supra note 86, at 24-5. 
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Delivery System which, through an interface with NSCC’s continuous net settlement system

(“CNS”), allowed brokers to net the often very large trades made for institutional customers

instead of settling trade-for-trade at DTC. In 1996, the Direct Registration System (“DRS”) was 

implemented, which allowed investors to hold uncertificated securities in registered form directly 

on the books of the issuer’s transfer agent.

92 DRS also allowed investors to transfer the shares to 

and from a brokerage account through FAST when they choose to sell or transfer the stock.93 

A number of legal and regulatory changes also led to increased participation at securities 

depositories among banks and broker-dealers. For example, in 1978, the UCC was revised to 

substitute the concept of delivery of securities specific to the physical delivery of certificated 

securities with the concept of “transfer” by book-entry on the books of a central depository.

94 As 

a result, the only book-entry transfers that qualified the transferee for protected purchaser rights

under the UCC, as discussed above in Section II.A, were those made on the books of a clearing 

corporation. 

In 1982 and 1983, the NASD and five stock exchanges, including the NYSE and 

American Stock Exchange, amended their rules to require their members to use a Commissionregistered securities depository for the confirmation, affirmation and settlement of transactions in 

 

92 See, e.g., Securities Exchange Act Release No. 37931 (Nov. 7, 1996), 61 FR 58600 (Nov. 15, 1996) (File 

No. SR-DTC-96-15) (approving establishment of DRS). Prior to the advent of DRS, unless they were held 

on a transfer agent’s books through a direct stock purchase plan or dividend reinvestment plan, book-entry 

shares generally could only be held by beneficial owners in street name through FAST. For more detail on 

DRS, see infra Section IV.C.2. See also infra note 144 (dividend reinvestment plan).

93 If the securityholder wants to sell the shares, they are transferred into a broker’s account by means of an 

“Electronic Participant Instruction” through DTC’s proprietary communication network, the Profile 

Modification System (“Profile”), through which the shares are re-registered in the name of Cede & Co. 

See Securities Exchange Act Release No. 60304 (June 30, 2009), 74 FR 33496 (July 13, 2009) (File No. 

SR-DTC-2009-11). For additional information, see infra note 309.

94 See U.C.C. 8-320.
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depository eligible securities if the member provides its customer with delivery-versus-payment 

privileges.

95 Delivery versus payment privileges allow payments to be made prior to or 

simultaneously with delivery of the securities.

 Because customers typically wanted those 

privileges, the rules had the effect of requiring the use of a registered securities depository to 

clear and settle institutional trades. As a result, DTC participation soared. In 1995 and 1996, 

several exchanges adopted uniform depository eligibility requirements, paving the way for an 

industry standard for depository eligibility determinations.

96 Finally, 1997 revisions to UCC 

Article 8 modernized securities holding rules by allowing depositories to make eligible 

additional foreign securities that are held through foreign custodians as well as other financial 

instruments.97 New York’s adoption of these revisions enabled DTC to use foreign banks as 

custodians. This increased DTC’s ability to maintain custody of securities abroad,

98 which 

resulted in additional foreign securities and other financial products and instruments becoming

depository eligible.99

 

95 Securities Exchange Act Release No. 25120 (Nov. 13, 1987), 52 FR 44506 (Nov. 19, 1987) (File No. SRNYSE-87-04).

96 See, e.g., Securities Exchange Act Release No. 35798 (June 1, 1995), 60 FR 30909 (June 12, 1995) (File 

Nos. SR-Amex-95-17, SR-BSE-95-09, SR-CHX-95-12, SR-NASD-95-24, SR-NYSE-95-19, SR-PSE-95-

14, SR-PHLX-95-34); Securities Exchange Act Release No. 36788 (Jan. 26, 1996), 61 FR 3741 (Feb. 1, 

1996) (File No. SR-CBOE-95-62).

97 See, e.g., U.C.C. 8-102(a)(7), (9), (17), 501, 506. 

98 See The Depository Trust Company 1998 Annual Report, available at

http://www.sechistorical.org/collection/papers/1990/1998_0101_DTCAR_1.pdf.

99 For example, DTC was able to expand eligible issues to include State of Israel bonds and Bankers’ 

Acceptances, short-term debt instruments that are guaranteed by commercial banks. See The Depository 

Trust Company 1997 Annual Report, available at 

http://www.sechistorical.org/collection/papers/1990/1997_0101_DTCAR.pdf.
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Clearing Agency Consolidation (1980s-present)

Throughout the late 1980s and mid-1990s, DTC merged with or absorbed business from 

several other depositories, leading to its further growth. First, in April 1987, the Pacific Stock 

Exchange Board of Governors closed the Pacific Securities Depository Trust Company. 

Virtually all eligible securities in its custody were moved to DTC. Then, in 1995, DTC and 

NSCC worked together to absorb the business of Midwest Securities Trust Company and 

Midwest Clearing Corporation in light of the Chicago Stock Exchange’s decision to exit the 

clearing and settlement business.

By the late 1990s, DTC had become the largest depository in the United States, and 

NSCC was the largest clearing agency.100 On June 15, 1999, the Commission issued an order 

approving DTC’s integration with NSCC.101 The Commission’s order authorized DTC and 

NSCC to restructure their boards of directors so that one board served both corporations.102 The 

Depository Trust & Clearing Corporation (“DTCC”), a holding company, was subsequently 

formed with DTC and NSCC as its subsidiaries.

Today, DTC provides depository and book-entry settlement services for substantially all 

corporate and municipal debt, equity securities, asset-backed securities, and money market 

instruments available for trading in the United States.103 It provides custody and asset services 

 

100 SEC Annual Report, 1997, tbl.3 (Clearing Agencies), at 179 and tbl.9 (Depositories), at 180. 

101 Securities Exchange Act Release No. 41800 (Aug. 27, 1999), 64 FR 48694 (Sept. 7, 1999) (File No. SRNSCC-99-10).

102 Id.

103 See DTCC: Settlement & Asset Services, available at http://www.dtcc.com/asset-services.aspx (last visited 

December 11, 2015). See also DTCC, Our Capabilities 17 (2014), available at

http://www.dtcc.com/~/media/Files/Downloads/About/DTCC_Capabilities.pdf.
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for securities valued at over $37 trillion.104 Approximately 1.4 million settlement-related 

transactions, with a value of approximately $600 billion, are completed at DTC each day.105 

DTC provides three primary services: (i) custody services; (ii) asset services, such as dividend 

and interest payment, reorganizations, and proxy services; and (iii) settlement services (through 

its interface with NSCC), all of which help facilitate the National C&S System mandated by the 

1975 Amendments. 

III. TRANSFER AGENT ROLE IN CLEARANCE AND SETTLEMENT PROCESSES

Because transfer agents operate within the National C&S System, it is important to 

understand that system, especially concerning the services transfer agents provide by maintaining 

accurate ownership records on behalf of issuers, facilitating the issuance or cancellation of 

securities, and distributing dividends within that system. Accordingly, this section provides a 

general overview of transfer agents’ operations and processes within the National C&S System.

A. Types of Security Ownership

Under the current centralized depository model in the United States, there are two types 

of securities owners: (a) registered and (b) beneficial. 

1. Registered Securityholders

Under state corporation law, certain securityholder rights commonly accrue only to those 

registered on the securityholder list and not to persons who may have an ultimate economic 

interest in the shares but who are not registered securityholders.

106 Registered securityholders 

 

104 Id.

105 Id.

106 See, e.g., Del. Code Ann. tit. 8, § 219(c) (right to examine the stockholder list or to vote in person or by 

proxy at any meeting of stockholders limited to registered securityholders).
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(who may also be referred to as “holders of record”)

107 own and hold securities in “registered 

form.”108 The UCC provides that an “issuer...may treat the registered owner as the person 

exclusively entitled to vote, receive notifications, and otherwise exercise all the rights and 

powers of an owner.”109 Registered securityholders are listed directly on the records of the 

issuer or the issuer’s transfer agent under their own names.

110 The issuer or its transfer agent 

may have direct contact with the registered securityholder, keep the records that reflect the 

ownership interest of the registered securityholder, and provide services directly to the registered 

securityholder. These services may include issuing, cancelling and transferring shares, making 

distributions, providing communications and mailings from the issuer, and answering 

securityholder inquiries. Registered owners can hold their securities either in certificated form or 

in uncertificated (i.e., book-entry) form, such as uncertificated securities held through DRS.

111

 

107 See Exchange Act Rule 17Ad-9(a)(3), 17 CFR 240.17Ad-9(a)(3) (referring to “securityholder’s 

registration”); Exchange Act Rule17Ad-9(a)(4), 17 CFR 240.17Ad-9(a)(4) (referring to “registered 

securityholder”); Exchange Act Rule 12g5-1, 17 CFR 240.12g5-1 (“securities shall be deemed to be ‘held 

of record’ by each person who is identified as the owner of such securities on records of security holders 

maintained by or on behalf of the issuer”). 

108 See U.C.C. 8-102(a)(13). (“‘Registered form,’ as applied to a certificated security, means a form in which: 

(i) the security certificate specifies a person entitled to the security; and (ii) a transfer of the security may be 

registered upon books maintained for that purpose by or on behalf of the issuer, or the security certificate so 

states.”)

109 U.C.C. 8-207. 

110 Because a registered securityholder may be either a natural person or a legal entity, such as a partnership, 

trust, or corporation, transfer agents generally are familiar with issues that may arise with respect to a 

registered securityholder’s legal status in connection with securities processing transactions. See Guttman, 

supra note 6, at § 5:19-5:28 (discussing different “aggregate” and corporate types of registered 

securityholders). 

111 A registered securityholder’s options for holding uncertificated securities, through DRS or otherwise, will 

be subject to the issuer’s governing documents and the law of its jurisdiction of organization, as well as to 

other legal requirements that may apply to the issuer, such as rules of SROs such as DTC and national 

securities exchanges. For additional discussion of DRS, see supra note 92 and infra Section IV. 
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2. Beneficial Owners

The vast majority of securityholders in the U.S. are beneficial owners rather than 

registered owners.

112 Beneficial owners do not own the securities directly but generally have 

purchased them through an intermediary, such as a broker or a bank, and determined to hold 

them in street name through a book-entry account with that intermediary. The intermediary, 

rather than the transfer agent, maintains and updates the securityholder records, facilitates or 

executes transfers, and provides other services for the securityholder.113 

When securities are held in street name, there is a legal distinction between the nominee, 

who has legal status as the registered securityholder, and the person with economic or beneficial 

ownership of the security.114 Securities held in street name are legally owned by and registered 

in the name of the depository’s nominee (most often DTC’s nominee, Cede & Co.). The 

individual investor’s broker (or other intermediary) who is a member or participant of the 

depository will be identified on the books of the depository as having a “securities 

entitlement”115 to a pro rata share of the fungible bulk of that security held by the depository.

116 

 

112 For more information regarding beneficial ownership, see, e.g., Final Street Name Study, supra note 82; 

Concept Release On The U.S. Proxy System, Exchange Act Release No. 62495 (July 14, 2010), 75 FR 

42982 (July 22, 2010) (“Proxy Concept Release”); Holding Your Securities—Get the Facts, SEC, available 

at http://www.sec.gov/investor/pubs/holdsec.htm. 

113 These transfer and recordkeeping services provided to beneficial owners by intermediaries may be referred 

to as “sub-transfer agent” services. For more information, see infra Section VII.B. 

114 For additional detail concerning aspects of beneficial ownership, see Preliminary Street Name Study, supra

note 45, at 9-11. For an example of reference in a rule of the Commission to “beneficial owner[s],” see, 

e.g., Exchange Act Rule 13d-3, 17 CFR 240.13d-3 (determination of beneficial owner).

115 See U.C.C. 8-102(a)(7) (defining “entitlement holder” as a person identified in the records of a securities 

intermediary as the person having a security entitlement against the securities intermediary); U.C.C 8-

102(a)(17) (defining “security entitlement”); U.C.C. 8-102(a)(14) (defining “securities intermediary” as (i) 

a clearing corporation or (ii) a person, including a bank or broker, that in the ordinary course of its business 

maintains securities accounts for others and is acting in that capacity); U.C.C. 8-503(b) (providing that an 
Page 39 of 208

Correspondingly, the individual investor will be identified on the books of the depository

participant (his or her broker or other intermediary) as having a securities entitlement to a pro 

rata share of the securities in which the participant has an interest. At each level, the 

intermediary will be obligated to provide the entitlement holder with payments and distributions

with respect to the financial asset and to exercise rights as directed by the entitlement holder.117 

A securities intermediary satisfies such duties where the intermediary acts as required by any 

agreement between the intermediary and entitlement holder.118 The entitlement holder will be 

permitted to look only to the intermediary for performance of the obligations.119 Other rights 

and interests that a beneficial owner has against a securities intermediary’s property are created 

by agreements between the beneficial owner and the securities intermediary. 

 

entitlement holder’s property interest with respect to a particular financial asset under [U.C.C. 8-503(a)] is 

a pro rata property interest in all interests in that financial asset held by the securities intermediary). 

116 For securities held in “fungible bulk,” there are no specifically identifiable shares directly owned by DTC 

participants. Rather, each participant owns a pro rata interest in the aggregate number of shares of a 

particular issuer held at DTC. In turn, each customer, such as an individual investor of a DTC participant, 

owns a pro rata interest in the shares in which the DTC participant has an interest. See Processing of 

Tender Offers Within the National Clearance and Settlement System, Exchange Act Release No. 19678, 

n.5 (Apr. 15, 1983), 48 FR 17603, 17605, n.5 (Apr. 25, 1983) (describing fungible bulk) (“Rule 17Ad-14 

Proposing Release”); Office of Investor Education and Advocacy, Investor Bulletin: DTC Chills and 

Freezes, SEC (May 2012), available at https://www.sec.gov/investor/alerts/dtcfreezes.pdf (discussing 

fungible bulk).

117 U.C.C. 8-505, 506.

118 U.C.C. 8-505(a)(1), 506(1). In the absence of an agreement covering payments and distributions, the 

securities intermediary must exercise due care in accordance with reasonable commercial standards. In the 

absence of an agreement with respect to the exercise of rights as directed by the entitlement holder, the 

securities intermediary either must place the entitlement holder in a position to exercise the rights directly 

or exercise due care in accordance with reasonable commercial standards to follow the direction of the 

entitlement holder. U.C.C. 8-505(a)(2), 506(2).

119 U.C.C. 8-503(c) (referring only to “securities intermediar[ies]” with respect to enforcement rights that may 

be exercised by an entitlement holder).
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B. Clearance and Settlement Process 

The clearance and settlement process differs depending on the type of security being 

traded, how the security is held by the investor (i.e., registered or beneficial form), the market or 

exchange on which it is traded, and the specific entities and institutions involved. Yet, regardless 

of the specific variables involved, the basic clearance and settlement processes are substantially 

similar. For illustration purposes, this section describes generally the clearance and settlement 

process for exchange-based equity trades held in street name. 

All securities trades involve a legally binding agreement that sets forth the terms of the 

trade. In general, the “clearing” of those trades is the process of comparing and confirming the 

material terms of the agreement: (i) the identity of the buyer and seller; (ii) the identity and 

quantity of the securities being traded; and (iii) the price, date, and other material details of the 

trade.

120 Clearing can be “bilateral,” where the parties to the transaction work directly with each 

other to take the steps necessary to clear the transaction, or “central,” where a third party, such as

a clearing agency, undertakes the steps necessary to clear the transaction.121

Settlement is the fulfillment by the parties to the transaction of their respective 

obligations for the trade, usually by exchanging funds for the delivery of securities. For equities, 

 

120 October 1987 Market Break Report, supra note 54, at 10-2 through 10-5; Teweles, supra note 8, at 302-3.

121 Prior to the 1980s, central clearing predominantly involved a two-sided matching process conducted mainly 

by the exchanges, where an exchange collected trade data and passed that information to the clearing 

agency. After the October 1987 Market Break led to significant numbers of unmatched trades, the 

Commission recommended that automated systems should be used to facilitate comparison at or near the 

time of trade execution. See Securities and Exchange Commission Recommendations regarding the 

October 1987 Market Break, contained in Testimony delivered by David S. Ruder, Chairman, Securities 

and Exchange Commission, before the Senate Committee on Banking, Housing and Urban Affairs, p. 23 

(Feb. 3, 1988). The recommendation was subsequently adopted in stages. See, e.g., New York Stock 

Exchange, Inc. “Overnight Trade Comparison,” adopted Aug. 14, 1989, Exchange Act Release No. 27096 

(Aug. 3, 1989), 54 FR 33299 (Aug. 14, 1989).
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settlement generally occurs three business days after the trade date (i.e., “T+3”),122 although 

other arrangements may be available by private agreement.123 Delivery currently is far more 

likely to be by book-entry than by exchange of physical certificates. As previously discussed, 

the brokers’ certificates in DTC’s depository are held in fungible bulk and registered in the name 

of Cede & Co. to facilitate book-entry transactions involving electronic debits (on the seller’s 

side) and credits (on the buyer’s side) to the brokers’ securities accounts at the depository rather 

than the movement of physical securities certificates. Because these shares are held in street 

name, DTC knows the names of the brokers who are DTC participants (often referred to as 

clearing brokers) but not the names of brokers who are not DTC participants (often referred to as 

introducing brokers) or either type of brokers’ customers.124 The brokers track the holdings of 

their customers who are the ultimate beneficial owners of the securities. For securities held in 

fungible bulk, rights are passed from record owner Cede & Co. through securities intermediaries 

to the ultimate beneficial owner.

Equity trades that are cleared and settled through DTC’s facilities are generally processed 

in NSCC’s CNS system, with final settlement on the third business day after the trade is 

executed. NSCC has approximately 1,000 members, made up of brokers, dealers, banks, and 

other intermediaries. Using CNS, NSCC nets multilaterally all of the clearing participants’

 

122 See Exchange Act Rule 15c6-1, 17 CFR 240.15c6-1. T (or T+0) is the day the trade is executed. The first 

business day following the trade date is T+1, and so on. Thus, assuming there are no non-business days in 

the week, a trade that is executed on a Monday (T or T+0) would settle on Thursday (T+3). A trade 

executed on Friday would settle on the following Wednesday (Saturday and Sunday are not business days, 

so T+1 is Monday, T+2 is Tuesday, etc.).

123 See, e.g., NYSE Rule 64 (2009).

124 For further information on introducing and clearing brokers, see fig.1 and accompanying text, infra.
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purchases and sales in each security to one security position per participant per day in order to 

arrive at a daily net settlement obligation for each participant. NSCC then makes deliveries only 

on the remaining net positions through settlement accounts that the participants hold with DTC 

(for securities) and the Federal Reserve System (for cash).125 Because NSCC interposes itself 

between trading brokers on each trade and guarantees the settlement as each broker’s 

counterparty,

126 each broker’s settlement is with NSCC and DTC, not with the other clearing 

participant, which reduces the brokers’ exposure to risk of default by other brokers (i.e., 

counterparty risk). A broker can either settle each day or carry open commitments forward to 

net against the next business day’s settlement (hence the continuous nature of CNS).127 On the 

cash side of the trade, all money owed to or from a particular DTC participant will be netted 

down each day by NSCC to a single dollar amount, which reduces the amount of money firms 

need to have on hand to settle their obligations. 

The goal of netting is to minimize the number and value of transactions required for 

buyers and sellers (or the firms acting on their behalf) to settle their transactions. For example, if 

a broker purchases 100 shares of XYZ stock for a customer and sold 50 shares of XYZ stock for 

another customer, at the end of the day the broker’s securities account at DTC would be credited 

with 50 shares of XYZ (the net difference between buying 100 shares and selling 50 shares). If 

 

125 NSCC Rule 11, 68-74 (May 4, 2015), available at www.NSCC.com (“Continuous Net Settlement”). The 

Federal Reserve System refers to the central bank of the United States, and is commonly referred to as the 

“Federal Reserve.” The Federal Reserve Board is the governing body for the Federal Reserve System. See 

generally, Federal Reserve, http://www.federalreserve.gov/aboutthefed/default.htm. 

126 NSCC Rule 11,68-74 (May 4, 2015), available at www.dtcc.com; see also Becker and Etter, International 

Clearance and Settlement, 14 Brook. J. Int’l L. 275, note 15 (1988); David M. Weiss, After the Trade is 

Made – Processing Securities Transactions 245-49 (2006) (“After the Trade is Made”).

127 See October 1987 Market Break Report, supra note 54, at ch. 10, 1-12; Teweles, supra note 8, at 312-26. 
Page 43 of 208

the broker paid $25 per share to buy the 100 shares of XYZ and sold the 50 shares for the same 

price on the same day, at the end of the day the broker’s cash account would be debited $1,250. 

The vast majority of equity trades handled by DTC clear and settle through NSCC’s CNS, 

which, on average, results in an reduction of the volume of settlement transactions by 

approximately 98%.128 As a result, on average, 99% of all trade obligations that occur in U.S.

equity markets do not require the exchange of money.129 

For illustration purposes only, Figure 1 below depicts one possible example of how an 

equity trade effected on a national securities exchange is cleared and settled, beginning with the 

buyer conveying an order to an executing broker. If the executing broker is a member of NSCC 

it may be referred to as a “clearing broker.” If it is not a member of NSCC, it may be referred to 

as an “introducing broker” or “correspondent broker,” depending on whether the broker carries 

and is responsible for the customer’s account. Where the executing broker is a member of 

NSCC (i.e., a clearing broker) it routes the order for execution to a national securities exchange. 

Where the executing broker is not a member of NSCC (i.e., an introducing or correspondent 

broker) it routes the order to a clearing broker who will then route the order for execution to a 

national securities exchange. The national securities exchange matches the order with a 

corresponding sell order and then sends matched trade data to NSCC. NSCC nets these orders 

using its CNS system. If the securities are held in street name, there will be no change to the 

 

128 See DTCC’s overview of NSCC, stating that NSCC’s netting system results in “reducing the value of 

securities and payments that need to be exchanged by an average of 98% each day,” available at 

http://www.dtcc.com/about/businesses-and-subsidiaries/nscc. 

129 Virginia B. Morris and Stuart Z. Goldstein, Guide to Clearance and Settlement: An Introduction to DTCC, 

8 (2009).
Page 44 of 208

master securityholder file130 maintained by the transfer agent and settlement will be effected by 

crediting and debiting the securities entitlement accounts of the buyer and seller, respectively. 

Thus, final settlement of the securities leg of the transaction will involve the following sequential 

steps: (i) the DTC securities account of the seller’s clearing broker will be debited with the 

securities being purchased; (ii) NSCC’s securities account at DTC will be credited with the 

securities purchased; (iii) the DTC securities account of the buyer’s clearing broker will also be 

credited; and (iv) each broker will credit or debit their respective customers’ securities accounts 

held with the broker. On the cash side, final settlement will involve the following sequential 

steps: (i) the Federal Reserve bank account of the buyer’s clearing broker will be debited for the 

sale price of the securities; (ii) DTC’s Federal Reserve bank account will credited for the sale 

price of the securities; (iii) DTC will transfer this cash to the Federal Reserve bank account of 

the seller’s Clearing Broker; and (iv) each broker will credit or debit its respective customers’ 

cash accounts held with the broker.

 

130 See infra Sections IV.A.3 and V.A. for additional description and discussion of transfer agents’ role and 

responsibilities with respect to the master securityholder file.
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Figure 1:

IV. TRANSFER AGENT REGULATION: ORIGINS AND CURRENT STATUS

This section provides a general overview of the federal and state law and other 

requirements, such as those of self-regulatory organizations (“SRO”), that apply to transfer 

agents and their activities. We begin with a review and discussion of each of the Commission’s 
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current transfer agent rules, then briefly discuss banking regulations and taxation-related 

requirements that may apply to transfer agents.

131 We then review the requirements of SROs

that apply to transfer agents, particularly DTC and NYSE rules. Finally, we discuss the 

regulation of transfer agents under state law. Later, in Sections V, VI, and VII of the release, we 

discuss issues and concerns related to modern transfer agent activities and seek comment on the 

best approach to addressing them. 

A. Federal Transfer Agent Rules 

Prior to 1975, most transfer agents were banks or trusts.132 There was no federal 

regulation of transfer agents and transfer agents were subject to state law, generally pursuant to 

UCC provisions.133 Transfer agents were also subject to stock exchange requirements regarding 

securities processing. For example, in 1869, the NYSE adopted a requirement that all shares of 

NYSE-listed companies must be registered at a bank or other agency.134 As another example, 

the “Chambers Street Rule” of the NYSE required transfer agents to maintain offices for transfer 

south of Chambers Street in New York City.135 The American Stock Exchange had similar 

requirements in its Rule 891.136 

 

131 See Section IV.B, supra, for discussion of bank transfer agents. Transfer agents that are not banks may be 

referred to as non-bank transfer agents.

132 Unsafe Practices Study, supra note 17, at 38. 

133 For a discussion of state law requirements impacting transfer agent processes, see supra Sections II and III.

134 See Facts and Figures, Historical, Chronology of New York Stock Exchange (1792-1929), available at

http://www.nyxdata.com/nysedata/asp/factbook/viewer_edition.asp?mode=table&key=2169&category=4. 

135 See Jerry W. Markham, A Financial History of the United States: From Christopher Columbus to the 

Robber Barons (1492-1900) 288 (2002). 

136 See, e.g., Securities Exchange Act Release No. 37562 (Apr. 25, 1996), 61 FR 43283 (Aug. 13, 1996) (File 

No. SR-DTC-96-09) (mentioning American Stock Exchange Rule 891 requirements). These requirements 

were criticized by non-New York banks providing transfer agent services as many banks viewed providing
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The 1975 Amendments gave the Commission regulatory authority for the first time over 

transfer agents.

137 Section 3(a)(25) of the Exchange Act defines a “transfer agent” as any person 

who engages on behalf of an issuer of securities or on behalf of itself as an issuer of securities in:

(A) countersigning such securities upon issuance;

(B) monitoring the issuance of such securities with a view to preventing 

unauthorized issuance (i.e., a registrar);138

(C) registering the transfer of such securities;

(D) exchanging or converting such securities; or

(E) transferring record ownership of securities by bookkeeping entry without 

the physical issuance of securities certificates.139

Section 17A(c)(1) of the Exchange Act requires any person performing any of these 

functions with respect to any security registered pursuant to Section 12 of the Exchange Act or 

with respect to any security which would be required to be registered except for the exemption 

contained in subsection (g)(2)(B) or (g)(2)(G) of Section 12 (“Qualifying Security”) to register 

 

transfer agent services as an important part of providing the full-service relationship it was believed was 

desired by corporate borrower clients. See Charles Welles, The Great Paper Fight: Who Will Control the 

Machinery?, Institutional Investor (May 1973), Hearings on S.2058 before S. Comm. on Banking, Hous. 

and Urban Affairs, Subcomm. on Securities, 93rd Cong. 334 (1973). The NYSE amended the Chambers 

Street Rule in 1971, permitting out-of-town transfer agents to act as listed company transfer agents, subject 

to certain conditions including that they maintain a “drop” office in lower Manhattan. In 2005, the 

Commission issued an order that approved an NYSE rule change that eliminated the Chambers Street Rule. 

Securities Exchange Act Release No. 51973 (July 5, 2005), 70 FR 40094 (July 12, 2015) (File No. SRNYSE-2004-62).

137 See S. Rep. No. 75, 57-58 (1975) (to accompany report S. 249). S. 249 is the principal legislative history of 

the Securities Acts Amendments of 1975 of which the transfer agent legislation was a part.

138 For additional information regarding “registrars,” see supra note 51 and Sections II.B and II.C.1 and infra

notes 298, 299, 320, 341 and Section IV.C.1. 

139 Exchange Act Section 3(a)(25), 15 U.S.C. 78c(a)(25). Note that any insurance company or separate 

account which performs such functions solely with respect to variable annuity contracts or variable life 

policies which it issues or any registered clearing agency which performs such functions solely with respect 

to options contracts which it issues is excluded from the definition of “transfer agent” under the Exchange 

Act. Id.
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with the Commission or other Appropriate Regulatory Agency (“ARA”).140 With respect to any 

transfer agent so registered, Section 17A(d)(1) of the Exchange Act authorizes the Commission 

to prescribe such rules and regulations as may be necessary or appropriate in the public interest, 

for the protection of investors, or otherwise in furtherance of the purposes of the Exchange 

Act.141 Once a transfer agent is registered, either compulsorily or voluntarily,142 the Commission 

“is empowered with broad rulemaking authority over all aspects of a transfer agent’s activities as 

a transfer agent.”143

Beginning in the late 1970s and early 1980s, the Commission adopted a series of transfer 

agent rules designed to regulate the basic recordkeeping and processing functions performed by 

transfer agents. The rules primarily related to routine transfers of certificated equity and debt 

securities and generally covered three areas: (i) registration and annual reporting requirements; 

(ii) timing and certain notice and reporting requirements related to securities transaction 

processing (referred to as “turnaround rules”); and (iii) recordkeeping and record retention rules 

and safeguarding requirements for securities and funds. 

 

140 Exchange Act Section 17A(c)(1), 15 U.S.C. 78q-1(c)(1). Additionally, see infra Section IV.B for 

discussion of bank ARAs.

141 As noted in the Committee Report which accompanied Section 17A(d)(1) of S.249, the precursor to Section 

17A(d)(1) of the 1975 Amendments, Congress intended to “. . . empower[] [the Commission] with broad 

rulemaking authority over all aspects of a transfer agents’ activities as transfer agent.” Senate Report on 

Securities Act Amendments of 1975, supra note 44, at 57.

142 There is no statutory or other prohibition on voluntary registration as a transfer agent, although it is 

relatively uncommon. See generally, Exchange Act Section 17A(c), 15 U.S.C. 78q-1(c). See also infra

Section VII.B.1, discussing the practice of voluntary registration as transfer agents by certain third party 

administrators (“TPA”).

143 See Senate Report on Securities Act Amendments of 1975, supra note 44. The Committee Report 

elaborated that it expected the Commission’s regulations “to include, among other matters, minimum 

standards of performance, the prompt and accurate processing of securities transactions, and operational 

compatibility of and cooperation by transfer agents with other facilities and participants in the securities 

handling process.” Id.
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As discussed more fully below, processing obligations related to mutual funds, dividend 

reinvestment plans (“DRIPs”),

144 and limited partnerships were expressly exempted from most 

of the processing and recordkeeping rules because at the time, the Commission believed that the 

activities required for the redemption of investment company shares and shares purchased or 

sold through a DRIP were significantly different from those required for the transfer of stocks 

and bonds.

145 Although the Commission has made modest revisions to the initial transfer agent 

rules and has added several new rules since the adoption of those earlier rules, the core 

registration, processing, recordkeeping, and safeguarding rules remain substantially unchanged,

and the exemptions for mutual funds, DRIPs, and limited partnerships have not been revisited. 

1. Registration and Annual Reporting Requirements

The rules setting forth the registration, annual reporting, and withdrawal requirements for 

transfer agents are found in Exchange Act Rules 17Ac2-1 (application for registration), 17Ac2-2 

(annual reporting), and 17Ac3-1 (withdrawal from registration).

Rule 17Ac2-1 and Form TA-1

Before a transfer agent may perform any of the statutory transfer agent functions defined 

in Section 3(a)(25) of the Exchange Act for a Qualifying Security, it must apply for registration 

by submitting Form TA-1 (Uniform Form of Registration as a Transfer Agent and for 

Amendment to Registration) to its ARA and its registration as a transfer agent with its ARA must 

 

144 DRIPs allow investors who already own an issuer’s stock to reinvest their cash dividends by purchasing 

additional shares or fractional shares directly from the issuer or the issuer’s transfer agent, without going 

through a broker. Most DRIPs require the investor to become a registered securityholder, as opposed to a 

street name holder.

145 See Regulation of Transfer Agents, Exchange Act Release No. 13636 (June 16, 1977), 42 FR 32404, 32408 

(June 24, 1977) (“Rule 17Ad-1 through 17Ad-7 Adopting Release”).
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have become effective.

146 Form TA-1 requires a transfer agent seeking to register to disclose 

information including the following: (a) general identification information147 about the transfer 

agent and whether it is part of any service company arrangements;

148 (b) the identity of its direct 

and indirect owners and other control persons;

149 and (c) whether it or any of its control affiliates 

has been subject to investment-related criminal prosecutions, regulatory actions, or civil 

actions.150 The registration automatically becomes effective 30 days after the Form TA-1 is 

filed, unless the ARA takes affirmative action to accelerate, deny, or postpone registration in 

accordance with the provisions of Section 17A(c) of the Exchange Act.

151 A registrant must 

amend its Form TA-1 within 60 days following the date on which information reported therein 

 

146 Exchange Act Section 17A(c)(1), 15 U.S.C. 78q-1(c)(1); 17 CFR 240.17Ac2-1; SEC Form TA-1, 17 CFR 

249b.100. Once registration has become effective, a transfer agent may be subject to censure, suspension, 

limitation, or revocation of its registration if the transfer agent or any person associated with the transfer 

agent fails to obey Commission rules or violates certain of the securities laws. Exchange Act Section 

17A(c)(3), 15 U.S.C. 78q-1(c)(3); Exchange Act Section 17A(c)(4)(C), 15 U.S.C. 78q-1(c)(4)(C). 

147 SEC Form TA-1, Items 1-7 (concerning basic identification information (such as name, contact person, 

phone number, address and email address), identification numbers including the transfer agent’s file 

number and FINS number, and information concerning service company arrangements in which the 

registrant may be involved). The file number for a transfer agent registered with the Commission would be 

the file number assigned by the Commission. A FINS number, short for Financial Industry Number 

Standard, is a unique five digit number issued by DTC and used by the securities industry as a means of 

identifying financial institutions in automated data processing systems. See Notice of Assumption or 

Termination of Transfer Agent Services, Exchange Act Release No. 35039 n.12 (Dec. 1, 1994), 59 FR 

63656 (Dec. 8, 1994) (“Adopting Release for Rule 17Ad-16”); See Becoming a DTC-Eligible Agent, 

DTCC, http://www.dtcc.com/asset-services/agent-services/dtc-eligible-agent (information provided by 

DTCC, the parent company of DTC, including a form for authorizing DTC to issue a FINS number).

148 For definition of “service company,” see infra note 241 and accompanying text.

149 SEC Form TA-1, Items 8 and 9, 17 CFR 249b.100.

150 SEC Form TA-1, Item 10, 17 CFR 249b.100.

151 Exchange Act Rule 17Ac2-1(a), 17 CFR 240.17Ac2-1(a); SEC Form TA-1, General Instruction G, 17 CFR 

249b.100. Note that the 30-day time period in Exchange Act Rule 17Ac2-1(a), 17 CFR 240.17Ac2-1(a), is 

shorter than the Exchange Act’s 45-day time period for applications to be effective. Exchange Act Section 

17A(c)(2), 15 U.S.C. 78q-1(c)(2). 
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becomes inaccurate, incomplete, or misleading.152 For transfer agents for whom the 

Commission is their ARA, they must file Form TA-1 and amendments thereto electronically on 

the Commission’s EDGAR system and each answer provided by the transfer agent is required to 

be formatted as an XML data tag.

153

Rule 17Ac2-2 and Form TA-2

All registered transfer agents, regardless of their ARA, must file an annual report with the 

Commission using Form TA-2 (Form for Reporting Activities of Transfer Agents Registered 

Pursuant to Section 17A of the Securities Exchange Act of 1934).

154 Form TA-2 covers a 

calendar year reporting period that ends on December 31155 and must be filed by March 31 of the 

year following the end of the reporting period. Form TA-2 must be filed electronically on the 

Commission’s EDGAR system and each answer provided by the transfer agent is required to be

formatted as an XML data tag.

156

Form TA-2 requires transfer agents to identify and report on the use of service 

companies, or other transfer agents, in connection with their transfer agent activities. It also 

requires transfer agents to provide annual data regarding the transfer agent’s compliance with the 

 

152 Exchange Act Rule 17Ac2-1(c), 17 CFR 240.17Ac2-1(c); SEC Form TA-1, General Instruction H, 17 CFR 

249b.100. 

153 Exchange Act Rule 17Ac2-1(d), 17 CFR 240.17Ac2-1(d); Electronic Filing of Transfer Agent Forms, 

Exchange Act Release No. 54864, 5 (Dec. 4, 2006), 71 FR 74698 (Dec. 12, 2006) (“Electronic Filing of 

Transfer Agent Forms Release”). 

154 Exchange Act Rule 17Ac2-2(a), 17 CFR 240.17Ac2-2(a); SEC Form TA-2, 17 CFR 249b.102 (Form for 

Reporting Activities of Transfer Agents Registered Pursuant to Section 17A of the Securities Exchange Act 

of 1934).

155 Exchange Act Rule 17Ac-2-2(b), 17 CFR 240.17Ac2-2(b).

156 Exchange Act Rule 17Ac2-2(c), 17 CFR 240.17Ac2-2(c); Electronic Filing of Transfer Agent Forms 

Release, supra note 153, at 5. 
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turnaround rules. Additionally, the form requires transfer agents to provide the Commission 

with updated information about their business activities, including accounts administered, items 

received,157 turnaround performance, total amounts of funds distributed, and lost securityholder 

accounts.158

Rule 17Ac2-2 provides exemptions from completing certain sections of Form TA-2 for 

small transfer agents and for transfer agents that outsource their work completely to service 

companies. If a registered transfer agent received fewer than 1,000 items for transfer in the 

reporting period and did not maintain master securityholder files for more than 1,000 individual 

securityholder accounts as of December 31 of the reporting period, it is only required to 

complete Questions 1 through 5, 11, and the signature section of Form TA-2.159 A named 

transfer agent that engaged a service company to perform all of its transfer agent functions 

during the reporting period is only required to complete Questions 1 through 3 and the signature 

section of Form TA-2.160

The Commission, other ARAs and members of the public (including issuers and 

investors) use information on Forms TA-1 and TA-2. The Commission’s EDGAR database 

provides a means through which information on these forms can be searched and retrieved. The 

Commission uses the information on Form TA-1 to review an entity’s application for registration 

as a transfer agent and to maintain current information about transfer agents. The Commission 

 

157 See generally, Section IV.A.2 for discussion of “item.”

158 See generally, SEC Form TA-2, 17 CFR 249b.102.

159 Exchange Act Rule 17Ac2-2(a)(1), 17 CFR 240.17Ac2-2(a)(1).

160 Exchange Act Rule 17 Ac2-2(a)(2), 17 CFR 240.17Ac2-2(a)(2).
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uses information on Form TA-2, as well as information on Form TA-1 and amendments thereto, 

for several purposes, including: (i) to determine the nature of the business conducted by a 

transfer agent, (ii) to monitor transfer agent activities and to evaluate compliance with 

Commission rules, and (iii) to inform Commission transfer agent policymaking.161 In connection 

with monitoring of and checking regulatory compliance by transfer agents, the Commission’s 

examination and inspections program may use the information on Forms TA-1 and TA-2 to plan 

their site visits in connection with an exam. The examination staff of the Commission may also 

use the information on Forms TA-1 and TA-2 to identify particular issues to focus on during an 

exam or to analyze industry trends and to provide basic census information concerning registered 

transfer agents. In addition, Form TA-1 and TA-2 data provide the Commission with 

information about securities processing issues that may need to be addressed by Commission 

rulemaking. Form TA-1 and TA-2 data is also used by the Commission to assist it in evaluating 

the costs and benefits of potential rulemaking.

Rule 17Ac3-1 and Form TA-W

Pursuant to Rule 17Ac3-1, a registered transfer agent may voluntarily withdraw its 

registration by filing Form TA-W (Notice of Withdrawal from Registration as a Transfer Agent) 

with the relevant ARA, disclosing, among other things, any actual or potential claims or legal 

proceedings against the transfer agent, its reasons for withdrawing or ceasing to function as a 

transfer agent, and whether one or more successor transfer agents will take over the maintenance 

 

161 See Adoption of Revised Transfer Agent Forms and Related Rules, Exchange Act Release No. 23084 (Mar. 

27, 1986), 51 FR 12124 (Apr. 9, 1986) (“Revised Transfer Agent Forms and Related Rules”); Electronic 

Filing of Transfer Agent Forms Release, supra note 153, at 5.
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of its transfer books. 162 Withdrawal from registration automatically becomes effective 60 days 

after filing Form TA-W, unless the Commission or applicable ARA finds it in the public interest 

to take affirmative action to accelerate, deny, or postpone the request.163 

2. Processing, Reporting, Recordkeeping, and Exemptions: Rules 17Ad-1 

Through 17Ad-7 and Rules 17f-1 and 17f-2

On June 16, 1977, the Commission adopted Rules 17Ad-1 through 17Ad-7 as a set of 

performance standards for transfer agents.164 These turnaround and processing rules were 

“designed to protect investors . . . and to contribute to the establishment of the national system 

for the prompt and accurate clearance and settlement of transactions in securities by,” among

other things, “assuring that the transfer agent community performs its functions in a prompt, 

accurate and more predictable manner.” The rules primarily focused on establishing minimum 

performance and recordkeeping standards for routine transfers of certificated equity and debt 

securities and the prompt and accurate cancellation and issuance of certificated securities.165 The 

rules were also designed to provide an early warning system to alert issuers and regulatory 

agencies when the performance standards are not being met, prohibit under-performing transfer 

agents from expanding their operations, require transfer agents to respond promptly to certain 

written inquiries regarding items presented for transfer, and require the maintenance and 

preservation of certain records necessary for regulatory authorities to monitor and enforce 

 

162 Exchange Act Rule 17 Ac3-1, 17 CFR 240.17Ac3-1; Exchange Act Section 17A(c)(3)(a), 15 U.S.C. 78q1(c)(3)(A); SEC Form TA-W, 17 CFR 249b.101 (Notice of Withdrawal from Registration as a Transfer 

Agent). 

163 Exchange Act Rule 17Ac3-1(b), 17 CFR 240.17Ac3-1(b).

164 Exchange Act Rules 17Ad1-7, 17 CFR 240.17Ad-1-7. 

165 See Rule 17Ad-1 through 17Ad-7 Adopting Release, supra note 145, at 32404. 
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transfer agent compliance with the turnaround rules.166 The specific processing, reporting, and 

retention requirements were metrics-based and, at the time, considered to be those necessary to 

ensure that transfer agents adequately performed their functions and that the Commission and 

other ARAs would be able to monitor transfer agents’ compliance with the turnaround rules.167 

Further, the new transfer agent rules established by the Commission were designed not only to 

ensure that transfer agents meet prescribed performance standards for their core recordkeeping 

and transfer activities, but to ensure they would be regulated appropriately in the context of the 

National C&S System and that any problems meeting these performance standards would not 

negatively impact individual investors or the clearance and settlement system as a whole.168 

Each rule is discussed in detail below.

Rule 17Ad-1 defines the relevant terms used throughout the rules. One of the most 

important is “item,” which is defined as the certificates of a single issue of securities presented 

under one ticket,

169 and is the basic unit for which the turnaround and other processing 

requirements apply.170 The other key definitions in Rule 17Ad-1 are “transfer” and 

“turnaround.” “Transfer” of a certificated security (where an outside registrar is not involved) is 

the completion of all acts necessary to cancel the certificate, issue a new one, and make it 

 

166 Id. See also Exchange Act Rules 17Ad-1-7, 17 CFR 240.17Ad-1-7. 

167 Rule 17Ad-1 through 17Ad-7 Adopting Release, supra note 145, at 32410.

168 Rule 17Ad-1 through 17Ad-7 Adopting Release, supra note 145, at 32407 (noting the importance of 

avoiding impediments to “the Commission’s efforts to provide necessary or appropriate regulations for 

transfer agents in the broader context of the establishment of a national system for the prompt and accurate 

clearance and settlement of securities transactions.”).

169 Exchange Act Rule 17Ad-1(a)(1), 17 CFR 240.17Ad-1(a)(1) (definition of “item”). See supra note 17

(describing tickets).

170 Rule 17Ad-1 through 17Ad-7 Adopting Release, supra note 145, at 32404.
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available to the presentor, and “turnaround” for an item (where an outside registrar is not 

involved) is completed when transfer is accomplished.171 

Rule 17Ad-2 sets the basic performance standards for transfer agents.172 Transfer agents 

who are not acting as a registrar must turnaround within three business days of receipt at least 

90% of all “routine items”173 received by the transfer agent during any month.174 Non-routine 

items must receive “diligent and continuous attention” and must be “turned around as soon as 

possible.”175 Routine items that are not turned around within three business days nevertheless 

must be “turned around promptly.”176 Registered transfer agents acting as a registrar must 

“process” at least 90% of all items received during any given month no later than noon of the 

next business day for any item received after noon and no later than the opening of business on 

the next business day for those items received at or before noon.177 If a transfer agent fails to 

meet the performance standards for turnaround set forth in Rule 17Ad-2 with respect to any 

month, it must notify the Commission and the transfer agent’s ARA if it is not the Commission 

 

171 Exchange Act Rule 17Ad-1(d), (e), 17 CFR 240.17Ad-1(d), (e).

172 As discussed in more detail infra in Section IV.C.1, the NYSE imposes a 48 hour turnaround requirement. 

173 Routine items are defined by Rule 17Ad-1(i), 17 CFR 240.17Ad-1(i). They are generally defined in the 

negative such that most items are considered routine so long as they do not require the requisition of a new 

certificate that the transfer agent does not have on hand, are not subject to a stop order, adverse claim, or 

other restriction on transfer, do not require certain additional documentation or review to complete the 

transfer, do not involve a transfer in connection with certain types of corporate actions, do not include a 

security of an issue which within the previous 15 business days was offered to the public pursuant to a 

Securities Act registration statement in an offering of a non-continuing nature, and do not include a 

warrant, right or convertible security either presented for transfer within five business days before rights 

expire or change or presented for exercise or conversion. 

174 Exchange Act Rule 17Ad-2(a), 17 CFR 240.17Ad-2(a). We note that with automation, these standards are 

substantially easier to meet than when the rule was adopted in 1977.

175 Exchange Act Rule 17Ad-2(e), 17 CFR 240.17Ad-2(e).

176 Id.

177 Exchange Act Rule 17Ad-2(e), 17 CFR 240.17Ad-2(b).
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within 10 business days of the end of the month, provide certain turnaround data regarding 

specific numbers and percentages of items, explain the reasons for the failure, identify what steps 

have been taken to prevent future failures, and provide certain data regarding routine items that 

have not been turned around and have been in the transfer agent’s possession for “more than four 

business days.”178 Similar notification requirements apply where a transfer agent acting as a 

registrar fails to meet the processing performance standards.179 

Rule 17Ad-3 provides limitations on the expansion of transfer agent activities if a transfer 

agent is unable to meet the minimum performance standards established by Rule 17Ad-2. Any 

transfer agent that is required pursuant to Rule 17Ad-2 to provide notice for failure to meet the 

performance standards for three consecutive months is prohibited from taking on new issues or 

providing new services for existing issues.180 Further, if a transfer agent fails to turnaround or 

process at least 75% of all routine items, it must notify the chief executive officer of each issuer 

for which the transfer agent acts.181 Thus, Rules 17Ad-2 and 17Ad-3, taken together, provide an 

early warning system to alert issuers, the Commission and other ARAs of untimely performance 

and potential problems.

Rule 17Ad-4 provides certain exemptions from the turnaround, processing, and 

recordkeeping rules. 182 Rule 17Ad-4(a) creates an exemption from Rules 17Ad-2, 17Ad-3, and 

 

178 Exchange Act Rule 17Ad-2(c), 17 CFR 240.17Ad-2(c).

179 Exchange Act Rule 17Ad-2(d), 17 CFR 240.17Ad-2(d).

180 Exchange Act Rule 17Ad-3(a), 17 CFR 240.17Ad-3(a). Such limitations on the business of the transfer 

agent continue until there has been a period of three successive months in which no notices have been 

required.

181 Exchange Act Rule 17Ad-3(b), 17 CFR 240.17Ad-3(b).

182 Exchange Act Rule 17Ad-4, 17 CFR 240.17Ad-4.
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17Ad-6(a)(1)-(7) for the processing of interests in limited partnerships, DRIPs, and redeemable 

securities issued by investment companies registered under Section 8 of the Investment 

Company Act of 1940 (“Investment Company Act”), which are also known as open-end 

funds.

183 In 1977, the rationale for providing the exemption for interests in limited partnerships 

was “the low volume of transfers of such interests,”184 while the rationale for providing the 

exemption for DRIPs was the Commission’s view at the time that transfer agents’ processing for 

DRIPs “require[s] procedures significantly different from the procedures required to transfer 

ownership of stocks and bonds.”185 

The Commission expressed the same rationale with respect to redeemable securities of 

registered investment companies, stating that transactions in these securities were “significantly 

different from the transfer of ownership of stocks and bonds on issuer’s records.”186 In addition, 

the Commission noted that such activity “is subject to Section 22(e) of the Investment Company 

 

183 Investment Company Act Section 8, 15 U.S.C. 80a-8. See generally, Section VII.C for discussion of 

transfer agents for investment companies and the handling of redeemable securities issued by investment 

companies.

184 Regulation of Transfer Agents, Exchange Act Release No. 13293 (Feb. 24, 1977) (“Rule 17Ad-1 through 

17Ad-7 Re-Proposing Release”) (“From the information provided in SEC Form TA-1, 17 CFR 249b.100, 

the low volume of transfers of such [limited partnership] interests suggests that they may appropriately be 

exempted from revised [Rules 17Ad-2, 17Ad-3, and 17Ad-6(a)(1) through (a)(7)].”).

185 Rule 17Ad-1 through 17Ad-7 Adopting Release, supra note 45 (“Lastly, the exemptions of paragraph 

17Ad-4(a) have been expanded to include the transfers and withdrawals of shares from dividend 

reinvestment plans which...require procedures significantly different from the procedures required to 

transfer ownership of stocks and bonds.”)

186 Rule 17Ad-1 through 17Ad-7 Adopting Release, supra note 145, at n.13. As originally proposed, the 

exemption would have been for “securities of open-end investment companies,” rather than “redeemable 

securities of investment companies.” See Rule 17Ad-1 through 17Ad-7 Re-Proposing Release, supra note 

184. By adding the word “redeemable,” redeemable securities of registered unit investment trusts (“UIT”) 

were included within the exemption. However, because closed-end investment companies do not issue 

redeemable securities, transfer agents servicing closed-end fund securities are not within the exemption. 

Rule 17Ad-1 through 17Ad-7 Adopting Release, supra note 145, at n.14 (“The turnaround rules do apply to 

registered transfer agents performing transfer agent functions for securities issued by closed-end investment 

companies.”) (emphasis added).
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Act of 1940, 15 U.S.C. 80a-22(e),”187 and that “[t]he amount of certificated fund shares is 

relatively small, and the amount of transfer agent activity in connection with transferring 

ownership of certificated shares represents a very small part of a transfer agent’s activity with 

regard to an open-end investment company.”188 For these reasons, the Commission believed at 

the time that “it would be desirable to study further the need for, and the nature of, minimum 

performance standards for the transfer of securities effected by open-end investment companies 

registered under Section 8 of the Investment Company Act, 15 U.S.C. 80a-8.”189 

Rule 17Ad-4(b) provides a similar exemption for certain small transfer agents by 

exempting a registered transfer agent from the turnaround, processing, recordkeeping, and other 

provisions of Rules 17Ad-2(a), (b), (c), (d) and (h), 17Ad-3, and 17Ad-6(a)(2)-(7) and (11), 

provided the transfer agent has received fewer than 500 items for transfer and fewer than 500 

items for processing within a consecutive six month period, and provided that the transfer agent 

has filed proper notice of its exempt status with its ARA or has prepared a document certifying 

that the transfer agent qualifies as exempt (with respect to those ARAs where filing is not 

required).190 The rationale behind this exemption was that, because the number of transfers 

performed by these smaller transfer agents was relatively small and involved issues which are 

not traded actively, it was not necessary or appropriate at that time to require those smaller 

 

187 Rule 17Ad-1 through 17Ad-7 Adopting Release, supra note 145, at 32408.

188 Rule 17Ad-1 through 17Ad-7 Adopting Release, supra note 145, at n.13.

189 Rule 17Ad-1 through 17Ad-7 Re-Proposing Release, supra note 184.

190 The filing of notices of exempt status for these small transfer agents is required where the ARA is the 

Federal Deposit Insurance Corporation (“FDIC”) or the Federal Reserve. Where the ARA is the 

Commission or the Office of the Comptroller of the Currency, the exempt transfer agent is not required to 

file a notice but must prepare a document certifying that the transfer agent qualifies as exempt and retain it 

in its records. See Exchange Act Rule 17Ad-4(b)(3), 17 CFR 240.17Ad-4(b)(3). 
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transfer agents to comply with the minimum performance standards, recordkeeping provisions, 

and other requirements in those rules.

191 

Rule 17Ad-5 generally requires a registered transfer agent to respond within prescribed 

timeframes to certain types of written inquiries.192 Rule 17Ad-5(a) requires a registered transfer 

agent to respond within five business days following the receipt of an inquiry from any “person”

concerning the status of an item presented for transfer by such person or their agent during the 

preceding six months, provided the inquirer provides specific information concerning the 

item.

193 Rule 17Ad-5(b) requires a registered transfer agent to respond to any “broker-dealer”

inquiry within five business days confirming or denying whether it has possession of a security 

presented for transfer and, if it has possession, acknowledging the transfer instructions or 

revalidating the window ticket,

194 provided the broker-dealer provides certain identifying 

information.195 Rule 17Ad-5(c) requires a registered transfer agent to respond within 10 

business days confirming or denying possession of a security where any person or their agent has 

requested that the transfer agent confirm possession as of a given date of a certificate presented 

by such person during the preceding 30 days 196 and provides information similar to that which is 

 

191 Rule 17Ad-1 through 17Ad-7 Adopting Release, supra note 145, at 32408.

192 Exchange Act Rule 17Ad-5, 17 CFR 240.17Ad-5. The response must generally be in writing, however, 

Rule 17Ad-5(f)(1) permits a telephone response if (i) the telephone response resolves the inquiry and (ii) 

the inquirer does not request a written response. Exchange Act Rule 17Ad-5(f)(1), 17 CFR 240.17Ad5(f)(1).

193 Exchange Act Rule 17Ad-5(a), 17 CFR 240.17Ad-5(a) (requiring inquirer to provide: (i) the issue, (ii) the 

number of shares or units (or principal amount of debt securities), (iii) the approximate date of presentation, 

and (iv) the name in which the item is registered).

194 Exchange Act Rule 17Ad-5(b), 17 CFR 240.17Ad-5(b).

195 Id. See also supra note 193 (concerning information to be provided by inquirers).

196 Exchange Act Rule 17Ad-5(c), 17 CFR 240.17Ad-5(c).
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required under Rules 17Ad-5(a) and (b).197 If required by the transfer agent, the inquirer must 

also provide assurance of payment.198 Rule 17Ad-5(d) requires a registered transfer agent to 

respond within 20 business days where any person requests a transcript of such person’s account 

with respect to a particular securities issue as of a certain date not more than six months prior to 

the request.199 If required by the transfer agent, the inquirer must provide the transfer agent 

assurance of payment of a reasonable fee for this service.200 

Rules 17Ad-6 and 17Ad-7, taken together, address some of the basic aspects of the 

records that transfer agents must maintain and for how long. 201 Rule 17Ad-6 generally details 

what records every registered transfer agent shall make and keep. Rule 17Ad-6(a)(1) requires 

every registered transfer to make and keep receipts, tickets, logs, schedules, journals, and other 

records showing the number of routine and non-routine items received and made available each 

business day.

202 Rules 17Ad-6(a)(2) through (4) require maintenance of records that generally 

relate to the monitoring of performance standards for turnaround and for processing under Rule 

17Ad-2 for each month and notices required to be filed under Rule 17Ad-2203 and any written 

inquiries or requests, including those inquiries to transfer agents where the inquiries were not 

subject to Rule 17Ad-5 or inquiries which were answered orally or where no response was made. 

Rule 17Ad-6(a)(8) requires maintenance of any contracts and certain related documentation 

 

197 Id. See also supra note 193 (concerning information to be provided by inquirers).

198 Id.

199 Exchange Act Rule 17Ad-5(d), 17 CFR 240.17Ad-5(d).

200 Id.

201 Exchange Act Rule 17Ad-6, 17 CFR 240.17Ad-6.

202 Exchange Act Rule 17Ad-6(a)(1), 17 CFR 240.17Ad-6(a)(1).

203 Exchange Act Rule 17Ad-6(a)(2)-(4), 17 CFR 240.17Ad-6(a)(2)-(4).
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showing the appointment or termination of the registered transfer agent to serve in any capacity 

on behalf of an issuer.204 Rule 17Ad-6(a)(9) requires records of: (i) currently active stop 

orders;

205 (ii) adverse claims;206 and (iii) restrictions on transfer.207 

Rule 17Ad-7 specifies the particular lengths of time for which the various records 

described in Rule 17Ad-6 shall be maintained.208 While the records listed in Paragraph (a)(1) of 

this rule were generally, at the time of its adoption in 1977, paper records such as receipts, 

tickets, schedules, they now are likely to be electronic records. Rule 17Ad-7(f), was updated in 

2001 and 2003 to authorize the use of electronic recordkeeping, electronic storage media, and 

micrographic storage media, such as microfilm records.209 Paragraph (g) of Rule 17Ad-7 

regulates transfer agent records maintained by an outside service bureau, other recordkeeping 

service or the issuer.”210 Paragraph (h) states that when a registered transfer agent ceases to 

perform transfer agent functions, its responsibilities under this provision “shall end upon the 

 

204 Exchange Act Rule 17Ad-6(a)(8), 17 CFR 240.17Ad-6(a)(8).

205 For discussion of stop orders as a general matter, see supra notes 25 and 26. 

206 For discussion of an adverse claim in connection with protected purchaser status under the UCC, see supra

note 14 and accompanying text. Regarding the existence of an adverse claim as a factor resulting in 

classification of an item as non-routine under the Commission’s transfer agent rules, see supra note 173, 

Exchange Act Rule 17Ad-1(i), 17 CFR 240.17Ad-1(i).

207 For discussion of securities subject to restrictions on transfer and of restrictive legends, see infra Section 

VI.D.

208 Exchange Act Rule 17Ad-7, 17 CFR 240.17Ad-7.

209 See Recordkeeping Requirements for Transfer Agents, Exchange Act Release No. 44227 (Apr. 27, 2001), 

66 FR 21659 (May 1, 2001); Recordkeeping Requirements for Registered Transfer Agents, Exchange Act 

Release No. 48949 (Dec. 18, 2003), 68 FR 75050 (Dec. 29, 2003) (“Recordkeeping Requirements for 

Transfer Agents”).

210 Exchange Act Rule 17Ad-7(g), 17 CFR 240.17Ad-7(g).
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delivery of such records to the successor transfer agent,” a provision that was originally included 

to clarify when a transfer agent is relieved of such recordkeeping responsibilities.211

Rule 17f-1212 was adopted in 1976 pursuant to Section 17(f)(1) of the Exchange Act in 

order to curtail trafficking in lost, stolen, missing, and counterfeit securities certificates.213 It 

requires reporting institutions, which are defined as national securities exchanges, brokers, 

dealers, registered transfer agents, and others, to report missing, lost, counterfeit, or stolen 

securities to the Commission or its designee. This led to the Commission’s implementation in 

1977 of the Lost and Stolen Securities Program and also led to subsequent Commission releases 

addressing in detail the structure of the program.

214 The program became fully operational on 

January 2, 1978 and consists mainly of an electronic database for securities certificates that have 

been reported lost, stolen, missing, or counterfeit.

215 The Dodd-Frank Wall Street Reform and 

Consumer Protection Act of 2010 (“Dodd-Frank Act”) expanded Section 17(f)(1)’s statutory 

 

211 Rule 17Ad-1 through 17Ad-7 Adopting Release, supra note 145, at 32411.

212 Exchange Act Section 17(f)(1), 15 U.S.C. 78q(f)(1); Exchange Act Rule 17f-1, 17 CFR 240.17f-1. See also

Adoption of Reporting and Inquiry Requirements with Respect to Missing, Lost, Stolen and Counterfeit 

Securities, Exchange Act Release No. 13053 (Dec. 15, 1976), 41 FR 54923 (Dec. 16, 1976) (order adopting 

Rule 17f-1).

213 See Senate Report on Securities Act Amendments of 1975, supra note 44 at 103-4; see also Hearings before 

the Permanent Subcomm. on Investigations of the S. Comm. on Gov’t Operations, 93rd Cong., 1st Sess. 

(1973), 2nd Sess. (1974).

214 See, e.g., Implementation of program for reporting and inquiry with respect to missing, lost counterfeit or 

stolen securities, Exchange Act Release No. 13832 (Aug. 5, 1977), 42 FR 41022 (Aug. 12, 1977) (order 

adopting Release implementing the Lost and Stolen Securities Program); U.C.C. 8-405 (“Replacement of 

Lost, Destroyed, or Wrongfully Taken Security Certificate”). 

215 See supra note 25. Lost and Stolen Securities Program Amendments, Exchange Act Release No. 15867 

(May 23, 1979), 44 FR 31500 (May 31, 1979). 
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coverage to add securities certificates that are cancelled to the categories that must be reported to 

the Commission or its designee.216

Rule 17f-2 was adopted in 1976 and requires the fingerprinting of certain securities 

industry personnel.217 In accordance with its governing statute, Section 17(f)(2) of the Exchange 

Act,218 Rule 17f-2 requires, with certain exemptions, the fingerprinting of all partners, directors, 

officers, and employees of brokers, dealers, registered transfer agents, and registered clearing 

agencies. The Dodd-Frank Act expanded Section 17(f)(2)’s statutory coverage to include the 

personnel of national securities exchanges, national securities associations, and registered 

securities information processors.219

3. Recordkeeping and Safeguarding Rules: Rules 17Ad-8 through 17Ad13 

The new regulatory regime established by the turnaround rules provided the Commission 

with visibility into the transfer agent industry and a way to review and analyze it. The first six 

years of monitoring transfer agent performance under the new regulatory regime highlighted 

some of the significant adverse operational and financial consequences for the securities 

industry, securities markets, issuer community, and investing public that could occur when a 

transfer agent’s operations collapse, when records maintained by a transfer agent contain 

significant inaccuracies, or when a transfer agent’s internal accounting controls are 

 

216 Pub. L. No. 111-203, 124 Stat. 1376, § 929D (2010). 

217 Exchange Act Rule 17f-2, 17 CFR 240.17f-2; Lost and Stolen Securities Program Amendments, Exchange 

Act Release No. 12214 (Mar. 16, 1976), 41 FR 13594 (Mar. 31, 1976) (order adopting Rule 17f-2).

218 Exchange Act Rule 17(f)(2), 15 U.S.C.78q(f)(2).

219 Pub. L. No. 111-203, 124 Stat. 1376, § 929S. 
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inadequate.220 The Commission therefore determined that additional rulemaking was necessary 

and appropriate to supplement the turnaround rules. 

The impetus for Rule 17Ad-8 was the recommendation in the Final Street Name Study 

that “each depository be required to transmit periodically to each issuer whose securities the 

depository holds of record a list of the persons on whose behalf the depository holds the 

securities.”221 The rule, which was adopted in 1980, requires every registered clearing agency to 

provide promptly to each issuer or transfer agent acting on its behalf, upon request, a securities 

position listing which identifies the participants on whose behalf the clearing agency holds the 

issuer’s securities in the name of the clearing agency or its nominee and the respective positions 

in such securities as of a specified date.222 The clearing agency may charge issuers who request 

this service with fees designed to recover its reasonable costs.223 

On June 10, 1983, the Commission adopted Rules 17Ad-9 through 17Ad-13.

224 These 

new rules established various requirements and exemptions designed to ensure that transfer 

agents maintain appropriate internal controls, meet adequate levels of service and performance, 

and avoid adverse operational and financial problems that could harm investors, issuers, or other 

securities industry participants. Most notably, the new rules established additional minimum 

 

220 See 17Ad-9 through 13 Proposing Release, supra note 2. In its release proposing Rules 17Ad-9 to 17Ad13, the Commission cited examples of substandard transfer agent performance in the areas of 

recordkeeping and safeguarding and noted the significant adverse operational and financial problems 

caused by poor transfer agent performance or operations. 

221 Securities Position Listing Rule, Exchange Act Release No. 16443 (Dec. 20, 1979), 44 FR 76774, 76775 

(Dec. 28, 1979) (“Adopting Release for Rule 17Ad-8”); Final Street Name Study, supra note 82, at 55.

222 See Exchange Act Rule 17Ad-8, 17 CFR 240.17Ad-8; Adopting Release for Rule 17Ad-8, supra note 221.

223 Exchange Act Rule 17Ad-8(b), 17 CFR 240.17Ad-8(b). 

224 Exchange Act Rules 17Ad-9-13, 17 CFR 240.17Ad-9-13
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standards for recordkeeping and codified minimum requirements for the safeguarding of funds 

and securities.225 The Commission believed that these additional minimum standards were 

critical to addressing seriously deficient transfer agent performance.226 

Rule 17Ad-9227 defines 12 principal terms with respect to transfer agents as used 

especially in Rules 17Ad-10 through 17Ad-13, consisting of the terms “certificate detail,” 

“master securityholder file,” “subsidiary file,” “control book,” “credit,” “debit,” “record 

difference,” “record keeping transfer agent,” “co-transfer agent,” “named transfer agent,” 

“service company transfer agent,” and “file.”228

Rule 17Ad-9’s certificate detail,229 with respect to certificated securities, includes, at a 

minimum, all of the following (and with respect to uncertificated securities, includes only items 

(ii) through (viii)): (i) the certificate number, meaning the unique serial number of each 

certificate of an issue of securities, as distinct from the CUSIP number230 which is the same 

number for all certificates of the same issue; (ii) the number of shares (for equity securities) or 

principal dollar amount (for debt securities) designated by the certificate; (iii) the 

securityholder’s registration, which is the name of the individual, partnership, or corporation in 

 

225 See 17Ad-9 through 13 Proposing Release, supra note 2. 

226 Id. The Commission was particularly concerned with reducing the potential for transfer agent failure, 

which inevitably imposes substantial potential liabilities and costs on issuers, securities firms, and 

securityholders, as well as improving generally transfer agent performance, thereby reducing the brokerdealers’ costs associated with fails to settle and extended transfer delays. 

227 Exchange Act Rule 17Ad-9, 17 CFR 240.17Ad-9. 

228 See 17Ad-9 through 13 Proposing Release, supra note 2. 

229 For “certificate detail,” see also Exchange Act Rule 17f-1(c)(6), 17 CFR 240.17f-1(c)(6).

230 CUSIP stands for Committee on Uniform Security Identification Procedures. A CUSIP number is assigned 

to most financial instruments. See CUSIP Number, SEC, http://www.sec.gov/answers/cusip.htm. 
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which a securities certificate is held and which registration appears on the face of the certificate;

(iv) the address of the registered owner, which also appears on the face of the certificate; (v) the 

date the certificate was issued, which likewise appears on the face of the certificate; (vi) the 

“cancellation date of the securities certificate,” which, if and when the certificate is cancelled 

will appear on the face of a certificate along with the word “cancelled” to evidence that the 

certificate no longer has any market value and that it no longer represents a claim against the 

issuer; (vii) in the case of redeemable securities of investment companies (e.g., securities issued 

by open-end management companies and other investment companies registered under Section 8 

of the Investment Company Act), an appropriate description of each debit and credit (i.e., 

designation indicating purchase, redemption, or transfer); and (viii) “[a]ny other identifiable 

information about securities and securityholders” that the transfer agent reasonably deems 

essential to its recordkeeping system for the efficient and effective research of record 

differences.231

“Master securityholder file” is defined as the official list of individual securityholder 

accounts. With respect to uncertificated securities of investment companies registered under the 

Investment Company Act, the master securityholder file may consist of multiple, but linked, 

automated files.232

 

231 Exchange Act Rule 17Ad-9(a), 17 CFR 240.17Ad-9(a).

232 Exchange Act Rule 17Ad-9(b), 17 CFR 240.17Ad-9(b). In other contexts, the master securityholder file 

may be referred to as a “stockholder register,” “stockholder list,” “shareholder ledger,” or some other 

designation. As used throughout this release, we refer to it as the master securityholder file. See, e.g., Del. 

Code Ann. tit. 8 §220 (referring to a corporation’s “stock ledger” as well as its “list of its stockholders”).
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A “subsidiary file” is any list of record of accounts, securityholders, or certificates that 

evidences debits or credits that have not been posted to the master securityholder file.233

A “control book” is the record or other document that shows the total number of shares 

(in the case of equity securities) or the principal dollar amount (in the case of debt securities) 

authorized and issued by the issuer.

234 The control book may be referred to in the industry as a 

registrar journal, and is one of the mechanisms transfer agents use to monitor against 

overissuance.

235

A “credit” is an addition of appropriate certificate detail to the master securityholder file, 

and a “debit” is a cancellation of appropriate certificate detail to the master securityholder file.236

A “record difference” occurs when either: (i) the total number of shares or total principal 

dollar amount of securities in the master securityholder file does not equal the number of shares 

or principal dollar amount in the control book; or (ii) the security transferred or redeemed 

contains certificate detail different from the certificate detail currently on the master 

securityholder file, which difference cannot be immediately resolved.237

 

233 Exchange Act Rule 17Ad-9(c), 17 CFR 240.17Ad-9(c).

234 Exchange Act Rule 17Ad-9(d), 17 CFR 240.17Ad-9(d).

235 The Commission’s transfer agent rules do not provide a definition of “overissuance” or explicitly import a 

definition from other authorities that have defined this term. The UCC provides a definition of this term 

which has been amended over the years and currently provides: “In this section ‘overissue’ means the issue 

of securities in excess of the amount the issuer has corporate power to issue, but an overissue does not 

occur if appropriate action has cured the overissue.” U.C.C. 8-210(a). One way in which an overissue can 

occur is when a corporation issues more shares than are authorized under its charter, such as its articles of 

incorporation. Under state law, shares over issued in such a manner may be deemed void. See, e.g., Del. 

Gen. Corp. L. §§ 161, 242(a)(3). For more information concerning the general concept of “overissuances” 

and types of transactions in which overissuances can occur, see Guttman, supra note 6, at § 11:7; Rhodes, 

supra note 18, at § 22:3. 

236 Exchange Act Rule 17Ad-9(e), (f), 17 CFR 240.17Ad-9(e), (f).

237 Exchange Act Rule 17Ad-9(g), 17 CFR 240.17Ad-9(g).
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A “recordkeeping transfer agent” is the registered transfer agent that maintains and 

updates a security’s master securityholder file.238 All other transfer agents associated with a 

given issue of securities are defined as “co-transfer agents,” which are registered transfer agents

that transfer securities but do not maintain and update the master securityholder file.239 A cotransfer agent may include an outside registrar that keeps only the control book as defined in 

Rule 17Ad-1(b). A “named transfer agent” is the registered transfer agent that is engaged by an 

issuer to perform transfer agent functions for an issue of securities but has engaged a service 

company to perform some or all of those functions.

240 And a “service company” is the registered 

transfer agent engaged by a named transfer agent to perform transfer agent functions for that 

named transfer agent.241

Finally, Rule 17Ad-9(l) clarifies that the term “file” includes both automated and manual 

records.242 

Rule 17Ad-10243 requires each recordkeeping transfer agent to post promptly certificate 

detail to its master securityholder file after a security is transferred, purchased, or redeemed. The 

meaning of the term “promptly” varies with the relevant transaction but generally is five business 

days, although for exempt transfer agents under Rule 17Ad-4(b) promptly means 30 calendar 

days and for transfer agents functioning solely for their own or their affiliated companies’

 

238 Exchange Act Rule 17Ad-9(h), 17 CFR 240.17Ad-9(h).

239 Exchange Act Rule 17Ad-9(i), 17 CFR 240.17Ad-9(i).

240 Exchange Act Rule 17Ad-9(j), 17 CFR 240.17Ad-9(j).

241 Exchange Act Rule 17Ad-9(k), 17 CFR 240.17Ad-9(k).

242 Exchange Act Rule 17Ad-9(l), 17 CFR 240.17Ad-9(l).

243 Exchange Act Rule 17Ad-10, 17 CFR 240.17Ad-10.
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securities and using batch processing promptly means ten business days.244 Timely updating of 

the master securityholder file is required because delayed posting or the failure to post would 

promote the proliferation of record inaccuracies that could impede the accurate payment of 

dividends and the processing of proxy solicitations.245 Rule 17Ad-10(g) requires, with certain 

exceptions, that any transfer agent that erroneously issues securities that result in an 

overissuance246 must “buy-in” (i.e., purchase securities in the open market) securities equal to 

the number of shares (in the case of equity securities) or principal dollar amount (in the case of 

debt securities) of the overissuance.

247 The buy-in requirement is designed to deter transfer 

agents from permitting record differences to accrue and encourages them to maintain complete 

and accurate records that assure that securityholders will receive all appropriate corporate 

distributions and communications.248

Rule 17Ad-11249 requires that within ten business days following the end of each month, 

registered recordkeeping transfer agents report to issuers and the ARA certain information 

regarding aged record differences250 when the dollar amount or the number of shares regarding 

 

244 See 17Ad-9 through 13 Proposing Release, supra note 2.

245 See infra Section V.B. for further discussion of proxy services.

246 See supra note 235. 

247 Exchange Act Rule 17Ad-10(g)(1), 17 CFR 240.17Ad-10(g)(1).

248 See Maintenance of Accurate Securityholder Files and Safeguarding of Funds and Securities by Registered 

Transfer Agents, Exchange Act Release No. 19860 (June 10, 1983), 48 FR 28231 (June 21, 1983) 

(“Adopting Release for Rule 17Ad-10”). 

249 Exchange Act Rule 17Ad-11, 17 CFR 240.17Ad-11.

250 Exchange Act Rule 17Ad-11(a)(2), 17 CFR 240.17Ad-11(a)(2). A record difference becomes an aged 

record difference if it exists for “more than thirty calendar days.”
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those shares reach certain preset levels.251 The reports required by 17Ad-11 must set forth the 

amount of aged record differences, the reasons for any difference, and the steps being taken to 

resolve any difference. 

Rule 17Ad-12252 requires registered transfer agents to safeguard funds and securities of 

which they have custody or possession in a manner reasonably free from theft, loss, destruction, 

or misuse, in light of all the facts and circumstances including the cost of particular safeguards 

and procedures that might be employed. A reasonable level of safeguarding is necessary due to 

various duties of transfer agents which may include, for example: (i) holding balance certificates 

as transfer agent custodians; (ii) administering DRIPs which involves the holding of funds and 

securities; (iii) making distributions, including of principal, interest and dividends, as paying 

agents of issuers;253 and (iv) maintaining working inventories of unissued securities 

certificates.254

Rule 17Ad-13255 requires registered transfer agents, with certain exceptions, to file 

annually with the Commission a report prepared by an independent accountant concerning the 

transfer agent’s system of internal controls and related procedures for the transfer of record 

ownership and the safeguarding of related securities and funds based on an annual study and 

evaluation made in accordance with generally accepted auditing standards. The purpose of the 

 

251 Exchange Act Rule 17Ad-11(b)(1), 17 CFR 240.17Ad-11(b)(1). The dollar amounts and share thresholds 

reflected in the table set forth in Rule 17Ad-11(b)(1) have not been modified since Rule 17Ad-11 was first 

adopted in 1983. 

252 Exchange Act Rule 17Ad-12, 17 CFR 240.17Ad-12.

253 See generally, Section VI.C for discussion of paying agent services.

254 Id.

255 Exchange Act Rule 17Ad-13, 17 CFR 240.17Ad-13.
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rule is to ensure that transfer agents have a system of internal controls adequate to provide 

reasonable assurances that securities and funds held by transfer agents – for example, when a 

transfer agent facilitates a dividend or interest payment for an issuer – are safeguarded against 

loss from unauthorized use or disposition and that transfer agent activities are performed 

promptly and accurately. The rule requires that the independent accountant’s report state 

whether the annual study and evaluation was made in accordance with generally accepted 

auditing standards using the criteria set forth in the rule and describe and comment upon any 

material inadequacies found to exist in the system of internal accounting control as of the date of 

the evaluation and any corrective action taken, or state that no material inadequacy exists. 256 An 

accountant preparing reports under this rule is expected to use the general standards established 

by the American Institute of Certified Public Accountants (“AICPA”).257

4. Issue-Specific Rules: Rules 17Ad-14 Through 17Ad-21T.

After the adoption of Rules 17Ad-8 through 17Ad-13, between 1983 and 2013 the 

Commission continued to adopt new rules to address specific issues. Specifically, Rules 17Ad14 through 17Ad-20, as well as 17Ad-21T, address issues such as tender agent services, 

signature guarantee programs, notifications when transfer agents begin or cease acting for 

specific issues, lost shareholder searches, processes for cancelling certificates, transfer of 

restricted securities, and anticipated risks associated with Year 2000 compliance. 

 

256 See Adopting Release for Rule 17Ad-10, supra note 248.

257 Id.
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Rule 17Ad-14258 requires a registered transfer agent that acts as a tender agent or a 

depositary for a party making a tender or exchange offer to establish and maintain special 

accounts with all qualified registered securities depositories that hold the subject company’s 

securities, thereby enabling depository participants to move securities to and from the tender 

agent by book-entry.259 Unless a bidder’s depositary establishes an account with a securities 

depository, all the subject securities must be tendered in physical certificate form, rather than by 

book-entry, which causes inefficiencies and other problems for securityholders, broker-dealers, 

bidders, tender agents, and others.260 The purpose of this rule is to reduce the processing costs 

and trading inefficiencies that occur when tender offers are processed in a physical certificate 

environment and to make the benefits of processing tender offers by book-entry available to the 

investing public and the securities industry.261 

For example, securityholders sometimes have difficulty obtaining properly denominated 

physical certificates for tender to the bidder’s depository prior to the offer’s expiration date. 

Also, instances where there is unavailability of book-entry settlement have resulted in a 

substantially higher number of fails-to-deliver between broker-dealers. As a result, brokerdealers who are unable to satisfy tender obligations may have to buy securities in the cash market 

for same-day delivery (i.e., delivery on the day of the contract), which may create significant 

price disparities between the cash market and the regular-way market (i.e., delivery on the third 

 

258 Exchange Act Rule 17Ad-14, 17 CFR 240.17Ad-14.

259 See discussion infra at p. 104 for definition of “tender agent.”

260 Processing of Tender Offers Within the National Clearance and Settlement System, Exchange Act Release 

No. 20581 (Jan. 19, 1984), 48 FR 17603 (Apr. 25, 1983).

261 Id.
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business day following the day of the contract).

262 Prior to the adoption of Rule 17Ad-14, 

bidders could insist upon the tender of physical securities certificates outside of securities 

depositories (such as to the bidder’s broker or local bank), even if the delivering entities were 

depository participants and even if the securities themselves were depository eligible. Doing so

not only increased the number of fails, but increased brokerage firms’ financing expenses and 

made it more difficult to settle transactions in a timely way.

263 

Rule 17Ad-15264 prohibits inequitable treatment of eligible guarantor institutions (e.g., 

banks, brokers, and other financial institutions) that provide signature guarantee programs. The 

rule implements Section 17A(d)(5) of the Exchange Act which expressly bars transfer agents 

from exercising inequitable treatment of financial institutions with respect to security 

guarantees.265 The signature guarantee program requires that a securities certificate bear a 

signature by a guarantor institution with a medallion stamp backed by a surety bond before the 

transfer agent will accept the certificate for transfer. The guarantee program allows the highspeed processing of a large volume of securities certificates that would be impossible if transfer 

agents had to examine the creditworthiness of the person behind each certificate being presented. 

Specifically, the program establishes requirements for its members with respect to guaranteeing 

and accepting securities certificates. The indorsing signature on a securities certificate is

 

262 Regular way settlement generally refers to settlement that occurs on a T+3 basis as required pursuant to 

Exchange Act Rule 15c6-1. Exchange Act Rule 15c6-1, 17 CFR 240.15c6-1. For additional information 

on cash, regular way, and other delivery schedules, see NYSE Rule 64 (2009).

263 For a discussion of tender offers and trade processing problems that arise when depository book-entry 

services are not used during tender offers, see Rule 17Ad-14 Proposing Release, supra note 116.

264 Exchange Act Rule 17Ad-15, 17 CFR 240.17Ad-15.

265 Exchange Act Section 17A(d)(5), 15 U.S.C. 17q-1(d)(5).
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guaranteed, typically by a financial institution, by the placement of a signature of the guarantor 

or its representative and a medallion stamp backed by a surety bond which, in effect, states that 

in event of mishap, the surety will pay for any damages incurred as a result of a forged signature

if the guarantor does not pay.266 With these assurances of financial safety, a transfer agent is 

able to accept a securities certificate without further examination or delay, as is required by the 

terms of the program.267 Rule 17Ad-15 requires transfer agents to establish written standards for 

the acceptance of signature guarantees, and it authorizes signature guarantee programs. It also

enables transfer agents to reject a request for transfer where a securities certificate is not 

guaranteed and bears no medallion stamp or where the guarantor is neither a member nor a 

participant in a signature guarantee program.268 

Rule 17Ad-16 requires a registered transfer agent to provide written notice to an 

“appropriate qualified registered security depository” (i.e., DTC)

269 when terminating or 

 

266 The UCC provides: “A person who guarantees a signature of an indorser of a securities certificate warrants 

that at the time of signing: (1) the signature was genuine; (2) the signer was an appropriate person to 

indorse, or if the signature is by an agent, the agent had actual authority to act on behalf of the appropriate 

person; and (3) the signer had legal capacity to sign.” U.C.C. 8-306.

267 There are currently three organizations that provide signature guarantee programs to their members: 

Securities Transfer Agent Medallion Program, Stock Exchange Medallion Program, and New York Stock 

Exchange Medallion Program. See, e.g., Signature Guarantees: Preventing the Unauthorized Transfer of 

Securities, SEC, http://www.sec.gov/answers/sigguar.htm.

268 See Acceptance of Signature Guarantees from Eligible Guarantor Institutions, Exchange Act Release No. 

30146 (Jan. 6, 1992), 57 FR 1082 (Jan. 10, 1992) (adopting release for Rule 17Ad-15).

269 Rule 17Ad–16 defines an ‘‘appropriate qualified registered securities depository’’ as the “qualified 

registered securities depository” that the Commission so designates by order or, in the absence of such 

designation, the qualified registered securities depository that is the largest holder of record of all qualified 

registered securities depositories as of the most recent record date. In 1995, the Commission issued an 

order approving a DTC rule filing in which DTC was designated as the “appropriate qualified registered

securities depository” to receive notices of transfer agent changes pursuant to Rule 17Ad-16 in order to 

eliminate uncertainty about where registered transfer agents should direct Rule 17Ad-16 notices, and to 

reduce unnecessary costs and administrative burdens for transfer agents and registered securities 
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assuming transfer agent services on behalf of an issuer or when changing its name or address.270 

The rule is intended to address the problem of unannounced transfer agent changes that adversely 

affect the prompt transfer of securities certificates by causing needless delays, costs, and risks.271 

Depositories and other entities in the marketplace must have the correct information in order to

send transfer instructions to the appropriate transfer agent at the correct address. In addition to 

causing delay in execution of the instructions, certificates sent to the wrong address may result in 

a loss of certificates. 

Rule 17Ad-17 is designed to ensure that the transfer agents, brokers, dealers, and other 

financial intermediaries make adequate efforts to find lost securityholders.272 It was first adopted 

in 1997273 and later amended at the beginning of 2013.274 The rule defines “lost securityholder” 

as a securityholder for whom an item of correspondence sent to his or her last known address 

was “returned as undeliverable” and requires transfer agents, brokers, and dealers to conduct two 

database searches in their efforts to locate a lost securityholder. It defines “unresponsive payee” 

to mean a securityholder to whom a paying agent has sent a regularly scheduled check which 

was not cashed or otherwise negotiated before the earlier of either the paying agent’s sending the 

next regularly scheduled check or of 6 months after the sending of the not yet negotiated 

 

depositories. See Securities Exchange Act Release No. 35378 (Feb. 15, 1995), 60 FR 9875 (Feb. 22, 1995) 

(File No. SR-DTC-95-02).

270 Exchange Act Rule 17Ad-16, 17 CFR 240.17Ad-16.

271 Adopting Release for Rule 17Ad-16, supra note 147.

272 Exchange Act Rule 17Ad-17, 17 CFR 204.17Ad-17.

273 Lost Securityholders, Exchange Act Release No. 39176 (Oct. 1, 1997), 62 FR 52229 (Oct. 7, 1997).

274 Lost Securityholders and Unresponsive Payees, Exchange Act Release No. 68668 (Jan. 16, 2013), 78 FR

4768 (Jan. 23, 2013) (“Adopting Release for 17Ad-17 Amendments”).
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check.275 Any “paying agent,” defined for purposes of Rule 17Ad-17 as “any broker, dealer, 

investment advisor, 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,” shall provide 

to each unresponsive payee not less than one written notice stating that such payee has been sent 

a check that has not yet been negotiated. 

Rule 17Ad-19 was adopted in 2003 and requires every transfer agent to establish and 

implement written procedures for the cancellation, storage, transportation, destruction, or other 

disposition of securities certificates.276 Specifically, it requires transfer agents to mark each 

cancelled securities certificate with the word “cancelled,” to maintain a secure storage area for 

cancelled certificates, to maintain a retrievable data base for of all its cancelled, destroyed, or 

otherwise disposed of certificates, and to have specific procedures for the destruction of 

cancelled certificates. The rule was adopted in response to a series of major thefts of cancelled 

certificates from transfer agent facilities, after which the stolen certificates were recirculated into 

the marketplace on a massive scale and fraudulently sold or used as loan collateral.277 

Rule 17Ad-20 prohibits registered transfer agents from effecting the transfer of any 

equity security registered pursuant to Section 12 or that subjects an issuer to reporting under 

Section 15(d) of the Exchange Act if such security is subject to any restriction or prohibition on 

 

275 Id. 

276 Exchange Act Rule 17Ad-19, 17 CFR 240.17Ad-19.

277 See 17Ad-19 Adopting Release, supra note 2. We note that in more than a decade since the adoption of 

Rule 17Ad-19, we are not aware of any major thefts of cancelled securities certificates or their unlawful 

recirculation back into the marketplace.
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transfer to or from a securities intermediary in its capacity as such.

278 In the 2004 adopting 

release for the rule, the Commission observed that issuers imposing such restrictions on transfer 

to intermediaries believe that “precluding ownership by certain securities intermediaries forces 

broker-dealers to deliver certificates on each transaction and eliminates the ability of naked short 

sellers to maintain a naked short sale position.”279 The Commission believed Rule 17Ad-20 was 

necessary to prevent transfer agent facilitation of the transfer of securities subject to such 

restrictions, because these types of restrictions disrupted prompt and efficient clearing and 

settlement in the U.S. securities markets.

Two rules relate to Year 2000 compliance. Rule 17Ad-18 (Year 2000 Reports to be 

Made by Certain Transfer Agents) was adopted by the Commission on July 13, 1998 and 

required non-bank transfer agents to, among other things, file a report attesting to the Y2K 

compliance of their mission critical computer systems by August 31, 1998.

280 The rule also 

required non-bank transfer agents to notify the SEC of any material Y2K problems that would 

affect the millennium transition. Similarly, Rule 17Ad-21T required non-bank transfer agents to 

ensure that their mission critical computer systems were Year 2000 compliant by August 31, 

1999 or to fix any non-compliant systems by November 5, 1999.281 The purpose was to reduce 

risk to investors and the securities markets that were posed by non-bank transfer agents that had 

not adequately prepared their computer systems for millennium transition. 

 

278 Exchange Act Rule 17Ad-20, 17 CFR 240.17Ad-20. 

279 See Issuer Restrictions or Prohibitions on Ownership by Securities Intermediaries, Exchange Act Release 

No. 50758, text following n.41 (Nov. 30, 2004), 70 FR 70852 (Dec. 9, 2004) (adopting release for Rule 

17Ad-20). See also U.C.C. 8-501 et seq.

280 Exchange Act Rule 17Ad-18, 17 CFR 240.17Ad-18.

281 Exchange Act Rule 17Ad-21T, 17 CFR 240.17Ad-21T.
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B. Bank and Internal Revenue Service Regulations

There are approximately 95 registered transfer agents that are banks or subsidiaries of 

banks. For national banks and banks operating under the Code of Law for the District of 

Columbia, the ARA is the Office of the Comptroller of the Currency (“OCC”); for State member 

banks, subsidiaries thereof, bank holding companies, and bank subsidiaries thereof the ARA is 

the Federal Reserve Board; and for banks insured by the FDIC (non-members of the Federal 

Reserve), the ARA is the FDIC. Collectively, we refer to transfer agents registered with the 

OCC, FDIC, or Federal Reserve Board as “bank transfer agents.” For non-bank transfer agents 

(i.e., all other transfer agents), the ARA is the Commission.282 

Prior to the 1975 Amendments and the adoption of the Commission’s transfer agent rules 

discussed in Section IV.A above, many of the organizations performing transfer agent services 

were banks or trust companies regulated by bank regulators. As noted in the Unsafe Practices 

Study, at that time, “[t]he power of the bank regulatory officials over the transfer function [was] 

not specific. Rather their concern [was] whether the performance of the transfer function may 

endanger the financial stability of the bank.”283 Today, pursuant to the 1975 Amendments and 

the Commission’s transfer agent rules enacted thereunder, bank transfer agents must comply 

with both the Commission’s transfer agent rules and any applicable rules promulgated by their 

ARA. Accordingly, bank transfer agents who are required to register as a transfer agent under 

 

282 Exchange Act Section 3(a)(34), 15 U.S.C. 78c(a)(34).

283 See Unsafe Practices Study, supra note 17, at 38. In contrast, the Exchange Act and the rules and 

regulations promulgated thereunder, including the Commission’s transfer agent rules, are focused on 

protecting investors and the securities markets. See Rule 17Ad-1 through 17Ad-7 Adopting Release, supra

note 145 (noting the importance of avoiding impediments to “the Commission’s efforts to provide 

necessary or appropriate regulations for transfer agents in the broader context of the establishment of a 

national system for the prompt and accurate clearance and settlement of securities transactions.”). 
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the Exchange Act initially register with their appropriate ARA, but must file an annual Form TA2 with the Commission.284 The bank ARAs have not promulgated separate rules designed to 

address specifically the transfer functions of bank transfer agents, but instead generally require 

bank transfer agents to comply with the Commission’s transfer agent rules. OCC, for example,

explicitly applies the Commission’s transfer agent rules to the “domestic activities of registered 

national bank transfer agents.”285 Similarly, the Federal Reserve Board’s rules provide that the 

Commission’s transfer agent rules “apply to member bank transfer agents.”286 The FDIC has 

stand-alone registration requirements for transfer agents and may examine transfer agents for 

both safety and soundness considerations under applicable banking regulations and for 

compliance with the Commission’s transfer agent rules.

287

With respect to examination and enforcement, both the ARA and the Commission have 

examinations powers over bank transfer agents, however, the Commission must provide notice to 

the appropriate ARA prior to conducting an examination and to arrange for a joint examination 

where desired.288 In addition, both the Commission and the ARA have enforcement authority 

over bank transfer agents.

289 

 

284 See supra Section IV.A.1.

285 12 CFR 9.20.

286 12 CFR 208.31. 

287 See FDIC Trust Examination Manual, sec. 11.B.1.b (Statutory Framework), available at

https://www.fdic.gov/regulations/examinations/trustmanual/section_11/section11toc.html (“Registered 

Transfer Agent Examination Manual”).

288 See Exchange Act Section 17(b), 15 U.S.C. 78q(b).

289 See generally, Exchange Act Section 17A(d), 15 U.S.C. 78q-1(d).
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In addition to complying with the Commission’s transfer agent rules, bank transfer agents 

must also comply with their ARA’s rules and standards. Those may supplement or exceed the 

Commission’s rules. In part, this may be due to the fact that a bank transfer agent’s activities 

could impact the proper functioning of the bank itself. As the FDIC explains in Section 11 of its 

Trust Examination Manual, one rationale for its transfer agent examination program is to “to 

detect and prevent situations which might threaten the viability of banks through diminution of 

their capital accounts.”290 It further notes that “to the extent that a registered transfer agent fails 

to conduct transfer agent operations in a safe and efficient manner . . . the transfer agent function 

could incur contingent liabilities or estimated losses which could adversely impact the bank’s 

capital accounts.”291 

As a result, for example, the FDIC examines its transfer agents for internal control and 

risk management policies and procedures that are similar to what is required for banks.292 With 

respect to internal controls, the FDIC specifies not only what it expects from the agent in order to 

demonstrate compliance with the Commission’s rules, but additional standards as well. These 

standards apply whether the transfer agent is housed within the bank’s trust department, is its 

own operating unit, or if the transfer agent activities are outsourced. The FDIC specifies 

suggested means for ensuring control over physical security, such as controlled access, secure 

safes and cabinets, and maintenance of access logs, and generally expects to see management 

oversight of operations consistent with bank management oversight. Supervision of the transfer 

 

290 See Registered Transfer Agent Examination Manual, supra note 287, at sec. 11.B (Introduction discussing 

the rationale for transfer agent examinations).

291 Id. at sec. 11.B.1.b (The Statutory Framework). 

292 Id. at sec. 11.G (Management), sec. 11.H (Internal Controls). 
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agent operations may be delegated, but ultimately rests with the bank’s Board and senior 

management.293 

Separately, depending on its duties, an OCC-registered transfer agent also may have to 

comply with statutory requirements for the treatment of “assets held in any fiduciary 

capacity.”294 For example, entities servicing in a fiduciary capacity may be required to segregate 

the fiduciary funds from the “general assets” of the bank and have a separate accounting for 

transactions involving the segregated funds.295

In addition, depending on the nature and scope of the services that transfer agents 

provide, they must comply with certain regulations and other guidance issued by the U.S. 

Department of the Treasury (“Treasury”) and the Internal Revenue Service. For example, 

transfer agents track and report to the Internal Revenue Service the dividend income and share 

sale activity they facilitate on behalf of issuers via Form 1099 reporting,296 and follow federal 

law requirements concerning tax withholding, where appropriate.297 

 

293 Id.

294 12 U.S.C. 92a(c). See also 12 CFR 9.2 (“Fiduciary capacity” includes transfer agents and registrars of 

stocks and bonds).

295 12 U.S.C. 92a(c).

296 See 2016 Instructions for Form 1099-DIV, available at http://www.irs.gov/pub/irs-pdf/i1099div.pdf (last 

visited November 20, 2015) (generally for information regarding disclosure of dividend payments).

297 For example, the Foreign Account Tax Compliance Act (“FATCA”), enacted in 2010, is intended to reduce 

tax evasion by U.S. individuals with respect to income from financial assets held outside the United States 

by requiring foreign financial institutions to, among other things, report directly to the Internal Revenue 

Service certain information about financial accounts held by U.S. taxpayers, or by foreign entities in which 

U.S. taxpayers hold a substantial ownership interest. See Hiring Incentives to Restore Employment Act, 

Pub. L. No. 111-147, §§501-541 (1986). Under FATCA, foreign financial institutions such as investment 

funds domiciled outside the United States are permitted to contract with their transfer agents or other agents 

to perform certain due diligence and other FATCA obligations on their behalf. A transfer agent’s service 

agreement may take into account these new responsibilities, under which the transfer agent may be required 

to perform due diligence on all investors listed in the investor record, report on U.S. individuals and 
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C. SRO Rules and Requirements Applicable to Transfer Agents

This section discusses some of the SRO rules and requirements applicable to transfer 

agents. While we focus here on NYSE and DTC requirements, we do so by way of example 

only. Other SROs may have additional rules which could apply to transfer agents in different 

contexts. 

1. NYSE Requirements

Transfer agents for NYSE listed securities are also subject to NYSE requirements. The 

requirements focus on (i) dual registrars and transfer agents; (ii) turnaround times; (iii) 

capitalization; and (iv) insurance coverage. The requirements also address transfer agent 

personnel, safeguarding, and co-transfer agents.

First, the NYSE Listed Company Manual (“NYSE LCM”), Section 601.01(B), provides 

that one person may serve as both registrar and transfer agent subject to compliance with the 

following conditions: (i) meeting insurance and net capital requirements (discussed in more 

detail below); (ii) maintaining the functions separately and distinctly with appropriate internal 

controls; (iii) annual review of such internal controls by the transfer agent's independent auditors;

(iv) submitting financial statements to the exchange; and (v) obtaining a certification from the 

transfer agent’s insurer that NSYE insurance requirements have been met. This provision is less 

restrictive than stock exchange prohibitions on serving as a dual registrar and transfer agent that 

 

institutions investing in the fund, and apply FATCA withholding to certain payments. For more 

information on regulations, rulings, notices, announcements, and other FATCA-related guidance or 

requirements for financial institutions, see, e.g., FATCA- Regulations and Other Guidance, IRS, 

http://www.irs.gov/Businesses/Corporations/FATCA-Regulations-and-Other-Guidance. 
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existed in earlier eras.298 It is the understanding of the Commission staff that outside or 

independent registrars are rarely used today.299

Second, as noted above, NYSE also imposes turnaround time requirements. NYSE LCM 

Section 601.01(A)(2) requires that routine transfers (as defined in Exchange Act Rule 17Ad-1) 

“must be processed under normal conditions within 48 hours of receipt of the securities by the 

transfer agent at its address designated for registration of transfers.” The 48 hour turnaround 

requirement was adopted by the NYSE in 1971 (originally as Rule 496) in the immediate wake 

of the transfer agent problems during the Paperwork Crisis.300 The Commission adopted its Rule 

17Ad-2 turnaround requirement (providing for three day turnaround) approximately six years 

later in 1977. In the adopting release for Rule 17Ad-2, the Commission stated “The adopted 

rules are not intended to and do not supersede any rules of self-regulatory organizations which 

impose more stringent performance standards.”301

 

298 See Rockwell Study, supra note 19, at 101 (1969 study discussing NYSE prohibition on serving as dual 

registrar and transfer agent); Securities Exchange Act Release No. 21499, File No. SR-NYSE-84-33 (Nov. 

19, 1984) (discussing prior 1971 NYSE rule change permitting banks and trusts to serve as dual registrar 

and transfer agent and approving NYSE rule change to eliminate prohibition on acting as dual transfer 

agent and registrar that had applied to transfer agents other than banks and trusts, subject to certain 

conditions).

299 Separate registrars and transfer agents still were common between 1977 and 1983, when the Commission 

adopted the majority of its transfer agent rules. Although even by that point, stock exchanges had relaxed 

certain prohibitions on serving as dual transfer agent and registrar, the practice often was followed because 

many securities industry participants believed that the independent registrar served an audit function that 

protected investors. See Study of the Securities Industry: Hearings Before the Subcomm. on Commerce 

and Fin. of the H. Comm. on Interstate and Foreign Commerce, 92nd Cong. app. DD 2391 (1971) (“1971 

Study of the Securities Industry Hearings”) (Statement of Herman W. Bevis, Executive Director of 

BASIC). 

300 See Securities Exchange Act Release No. 21499, File No. SR-NYSE-84-33 n.16 (Nov. 19, 1984) (noting 

the NYSE adopted the 48 hour turnaround policy in 1971); 2011 NYSE Rule Archives, Rule 496.

301 Rule 17Ad-1 through 17Ad-7 Adopting Release, supra note 145, at 32404 n.4.
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Third, NYSE LCM Section 601.01(A)(1)(i) requires that a transfer agent must have at 

least $10 million in “capital, surplus (both capital and earned), undivided profits, and capital 

reserves.” Where a transfer agent is unable to meet this capital requirement, NYSE LCM 

Section 601.01(A)(12) provides for a lower alternative capital standard of $2 million that the 

transfer agent may meet if it maintains certain additional insurance coverage.302 The 

requirements may also be satisfied by a parent company.303 Fourth, NYSE LCM Section 

601.01(A)(1)(ii) requires that a transfer agent maintain insurance coverage of at least $25 million 

“to protect securities while in process.”304

The NYSE also requires transfer agents to be staffed with “experienced personnel 

qualified to handle so-called ‘legal terms’ and to advise on and handle other transfer 

problems.”305 A transfer agent is also required to assume responsibility and liability for 

securities in its possession and must “provide adequate facilities for the safekeeping of securities 

in its possession or under its control.”306 Additional provisions address other items specific to 

the NYSE, co-transfer agents, and independent registrars.307

 

302 See NYSE Listed Co. Manual §601.01(A)(12) (2013) (making the lower capital standard conditional on the 

maintenance by the transfer agent of “errors and omissions insurance coverage in an amount which, taken 

together with its capital, surplus (both capital and earned), undivided profits, and capital reserves, equals at 

least $10,000,000 and, provided further, that such transfer agent maintains the insurance required by 

Para.601.01(A)(1)(ii).”)

303 NYSE Listed Co. Manual §601.01(A)(10) (2013).

304 NYSE Listed Co. Manual §601.01(A)(1) (2013).

305 NYSE Listed Co. Manual §601.01(A)(6) (2013).

306 NYSE Listed Co. Manual §601.01(A)(4),(7) (2013).

307 See generally, NYSE Listed Co. Manual §601.01(A)-(D) (2013).
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2. DTC Requirements

Transfer agents who participate in DRS must comply with DTC rules and regulations. 

Many transfer agents participate in DRS, especially because national U.S. securities exchanges, 

including NYSE and NASDAQ, require newly listed securities to be DRS eligible.308 

DTC requires transfer agents to satisfy four primary requirements before being eligible to 

process DRS transactions, including the following:

• Because DRS is integrated for communication purposes into DTC’s Profile 

system, transfer agents must become “Limited Participants” in DTC by 

submitting an application to the DRS Program Administration for DTC 

approval.

309

• Participate in DTC’s FAST program by becoming a FAST agent and agreeing to 

DTC’s Operational Criteria for FAST Transfer Agent Processing (“FAST 

criteria”). The FAST criteria outline rules for securities transfers through FAST, 

DTC’s Operational Arrangements, and DTC’s Balance Certificate Agreement. 

The Operational Arrangements include, among other things, DTC’s requirements 

for issues to be DTC-eligible, additional transfer requirements for FAST agents, 

record date requirements, and dividend and income notification procedures. By 

signing the Balance Certificate Agreement with DTC, transfer agents agree to 

maintain DTC-eligible inventory in the form of jumbo certificates registered in 

 

308 See NYSE Listed Co. Manual §501.00 (2013) (requiring “all securities listed on the Exchange [to] be 

eligible for a direct registration system operated by a securities depository”); NASDAQ Rule 5210(c) 

(requiring “all securities initially listing on Nasdaq, except securities which are book-entry only, [to] be 

eligible for a Direct Registration Program operated by a clearing agency registered under Section 17A of 

the [Exchange] Act.”).

309 Profile was implemented by DTC in 2000 to “electronically convey an investor's request to move from one 

form of securities ownership to another. Profile takes the place of the paper transaction advice for 

electronic movement of securities positions between street-name positions and direct registration bookentry positions. Profile includes all the data fields listed on the paper transaction advice, including the 

investor’s broker-dealer account number, investor’s DRS account number, Tax I.D./Social Security 

number, full registration, and CUSIP.” DTC, An Overview, available at

http://www.dtc.org/dtcpublic/html/lob2/prod6/drsdetail.htm. In addition, since 2001, the Profile Surety 

Program has provided for a surety bond to help mitigate the risks for parties using DRS and Profile, similar 

to a medallion stamp on a certificated security.
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the name of DTC’s nominee, Cede & Co., and that they will electronically 

reconcile DTC participants’ daily deposit and withdrawal activities. 

• Establish and maintain electronic communication links with DTC through Profile 

so that DTC participants (e.g., broker-dealers) and limited participants (e.g., 

transfer agents) can communicate investors’ instructions electronically. DTC 

requires transfer agents to complete DRS and Profile training before using Profile. 

Profile includes data fields that would be included in a traditional paper 

transaction, including the investor’s broker-dealer account number, investor’s 

DRS account number, Tax I.D./Social Security number, and CUSIP numbers of 

the securities. Once those instructions are transmitted, the actual movement of 

securities ownership takes place in DRS.

• Participate in DTC’s Profile Surety Program, which functions similarly to the 

medallion guarantee programs for paper based transactions by providing for a 

surety bond to back the representations made by the transacting parties. 310 

Additionally, DTC criteria that must be met by a securities issuer to ensure its securities 

are eligible for DRS and Profile may indirectly apply to transfer agents acting on behalf of the 

issuer. For example, DTC requires issuers to mail DRS book-entry statements to registered 

owners evidencing their holdings at least once a year.311 Transfer agents acting on behalf of 

issuers wishing to participate in DRS may therefore be asked by their issuer clients to handle this 

statement mailing function.

D. Regulation of Transfer Agents Under State Law

Transfer agents are subject indirectly to state corporation law when acting as agents of

corporate issuers, and they are directly subject to state commercial law, principal-agent law, and 

other laws, many of which are focused on corporate governance and the rights and obligations of 

 

310 See Securities Exchange Act Release No. 41862 (Sept. 10, 1999), 64 FR 51162, 51163 (Sept. 21, 1999) 

(File No. SR-DTC-99-16). See also supra note 86 (regarding FAST requirements).

311 DTC requirements for DRS and Profile eligible transfer agents and issuers are discussed in greater detail at 

Direct Registration System, DTCC, http://www.dtc.org/dtcpublic/html/lob2/prod6/drsdetail.htm (last 

visited November 20, 2015). 
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issuers and securityholders.

312 While a full discussion of all state laws applicable to transfer 

agents is beyond the scope of this release, the transfer of investment securities is primarily 

governed by UCC Article 8, which has been adopted by the legislatures of all 50 states,313 the 

District of Columbia, Puerto Rico, and the Virgin Islands. Article 8 was most recently revised in 

1994 to introduce the concept of a securities entitlement as a way to simplify and clarify the rules 

for the modern street name system.314 Although UCC Article 8 is intended to provide a uniform 

and practical definition of the responsibilities of issuers and their agents in issuing and 

transferring securities, it does not encompass or preempt the complete body of state laws that 

may relate to transfer agent activity.

315 Transfer agents may also be subject to the laws of the 

states of incorporation for both issuers and their securityholders that apply to specific services 

provided by the transfer agent, such as data privacy.316 

V. EVOLUTION OF RECORDKEEPING, TRANSFER, AND RELATED 

TRANSFER AGENT ACTIVITIES

This section discusses some of the core recordkeeping, transfer, and other activities that 

transfer agents engage in, the manner in which the current transfer agent rules apply to those 

 

312 See, e.g., Del. Code Ann. tit. 8 (Delaware General Corporation Law), Del. Code Ann. tit. 6, art. 8 

(Investment Securities), Restatement (Third) of Agency (2006).

313 Louisiana has enacted the provisions of Article 8 into the body of its law, among others, but has not 

adopted the UCC as a whole.

314 U.C.C. 8-501 et seq. (1994).

315 For example, in addition to UCC Article 8, various state laws relating to contracts, principal agent 

relationships, estoppel, fraud, bankruptcy, escheatment (or abandoned property) and other areas may apply 

to a specific transaction or situation. 

316 For example, California’s privacy statute which became effective in 2003, was the first significant effort by 

a state to assert substantive regulation of privacy of customer data. See Cal. Civ. Code §§ 1798.80–

1798.84. While state regulations vary across jurisdictions, other states have followed suit with similar 

regulatory initiatives. See, e.g., Minn. Stat. § 325E.61, Neb. Rev. Stat. §§ 87-801–807.
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activities, and how those activities have evolved over time. The world looks very different today 

than it did in 1977, when the first transfer agent rules were adopted. Since then, the increased 

use and decreased cost of technology, the expansion of corporate actions to bring securities into 

the public market, the continued dematerialization of securities, and other changes have resulted 

in significant evolution and changes to the types of services transfer agents provide and the 

manner in which they provide them. At the same time, with limited exceptions, the 

Commission’s transfer agent rules have not been updated. As a result, there may be divergence 

between modern transfer agents’ activities and the activities that the Commission’s rules are 

designed to regulate. 

A. Recordkeeping, Transfer, Issuance, and Corporate Actions

All transfer agents perform a number of core recordkeeping, transfer, and other services 

related to their primary function of facilitating the transfer of securities. This section discusses 

some of the activities transfer agents engage in with respect to these services and the relevant 

transfer agent rules applicable to them. 

1. Recordkeeping: Rules 17Ad-9, 10, and 11

Transfer agents have direct responsibility for maintaining on behalf of the issuer the 

currency and integrity of the official list of the registered owners of an issuer’s stocks and bonds, 

how those stocks and bonds are held, and how many shares or bonds each investor owns. This 

list is defined by Rule 17Ad-9(b) as the master securityholder file.

317 Without the master 

securityholder file, registered owners of an issuer’s securities cannot be assured that they are 

 

317 See Exchange Act Rule 17Ad-9(b), 17 CFR 240.17Ad-9(b). 
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recognized as such by the issuer and that they will receive corporate distributions, 

communications, and the other rights of security ownership to which they are entitled.318

Transfer agents also maintain and keep current the control book which is defined by Rule 

17Ad-9(d) as the record of the total number of shares of equity securities or the principal dollar 

amount of debt securities authorized and issued by the issuer for each issue the transfer agent 

services.319 As discussed above in Section IV.A.3, one of the main purposes of the control book 

is to allow the transfer agent to monitor the number of securities outstanding to prevent 

overissuance because the total number of shares reflected in the aggregate on the master 

securityholder file should match the number of shares authorized in the control book.320 

Finally, pursuant to Rule 17Ad-6, transfer agents maintain the transfer journal.

321 The 

transfer journal can be a useful tool for transfer agents and issuers. For example, when reviewed 

in conjunction with the master securityholder file, the transfer journal may provide historical 

information regarding the issuance and transfer of a specific security or the holdings of a specific 

securityholder. The transfer agent rules do not define transfer journal nor codify requirements 

with respect to the transfer journal.

 

318 See generally, e.g., Del. Code Ann. tit. 8 §§ 170, 173 (authorizing a corporation to pay cash and stock 

dividends under certain circumstances); Exchange Act Rule 14c-3, 17 CFR 240.14c-3 (requirement to 

furnish an annual report to securityholders); Del. Code Ann. tit. 8 §212 (providing for voting rights of 

stockholders and permitting them to vote by proxy); Del. Code Ann. tit. 8 §222 (requirement to send 

stockholder notice in advance of stockholder meeting).

319 Exchange Act Rule 17Ad-9(d), 17 CFR 240.17Ad-9(d). 

320 When acting in this capacity, a transfer agent may be referred to as a “registrar.” See Exchange Act 

Section 3(a)(25), 15 U.S.C. 78c(a)(25). 

321 Exchange Act Rule 17Ad-6, 17 CFR 240.17Ad-6.
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The primary recordkeeping rules that apply to the core records discussed above include 

Rules 17Ad-9, 17Ad-10, and 17Ad-11. These recordkeeping requirements are supplemented and

reinforced by the recordkeeping and record retention and preservation requirements found in 

Rules 17Ad-6 and 17Ad-7. Rules 17Ad-9 and 17Ad-10 define the term master securityholder 

file, provide the specific information regarding a securityholder that must be maintained on the 

master securityholder file, defined in the rules as certificate detail,322 and set specific timing 

deadlines for recording this information.323 In addition, Rule 17Ad-10 imposes obligations on 

transfer agents to carry over any existing certificate detail where they succeed to the maintenance 

of a master securityholder file that was maintained in an earlier format or by a predecessor 

transfer agent.324 

The Commission’s transfer agent rules seek to promote accurate recordkeeping by 

transfer agents by establishing specific requirements when a transfer agent identifies a specific 

type of discrepancy in its records referred to in Rule 17Ad-9(g) as a record difference.325 Rule 

17Ad-10(b) requires transfer agents to “exercise diligent and continuous attention to resolve all 

 

322 See supra Section IV.A.3. We note that the “certificate detail” requirements in Rule 17Ad-9 apply to both 

certificated securities and book-entry positions. Further, while we focus here on Rule 17Ad-9’s certificate 

detail requirements, Rule 17Ad-9(a)(4) is relevant to other rules that depend on obtaining securityholders’

address information such as Rules 17Ad-12 and 17Ad-17. We also note that Rule 17Ad-9(b) permits 

registered investment companies to maintain multiple, but linked, automated files with respect to bookentry securities. 

323 With certain exceptions, certificate details must be posted within five business days, unless a transfer agent 

is an “exempt transfer agent” under Rule 17Ad-4(b) or an issuer acting as its own transfer agent for its own 

securities. Exchange Act Rule 17Ad-10(a)(2)(i)-(ii), 17 CFR 240.17Ad-10(a)(2)(i)-(ii).

324 See Exchange Act Rule 17Ad-10(h), 17 CFR 240.17Ad-10(h). As discussed below in Section VI.B, the 

rule does not require predecessor transfer agents to turn over such information to the issuer or to a 

successor transfer agent.

325 Exchange Act Rule 17Ad-9(g), 17 CFR 240.17Ad-9(g). For additional discussion of the goals and 

objectives of the Commission’s transfer agent rules, see supra Section IV. 
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record differences.” Further, Rule 17Ad-10(b) requires that every recordkeeping transfer agent 

maintain and keep current an accurate master securityholder file and subsidiary files, and if a 

record difference is identified, then both the master securityholder file and subsidiary files must 

accurately represent all relevant debits and credits until the record difference is resolved.326 

As discussed above, if a record difference exists for “more than thirty calendar days,” it 

becomes an aged record difference under Rule 17Ad-11(a)(2).327 Depending upon the aggregate 

market value of the aged record differences for a particular issuer and the capitalization of the 

issuer, Rule 17Ad-11(b) may require the transfer agent to send a monthly report to the affected

issuer.328 Depending on the total number of issuers serviced and the aggregate market value of 

all record differences across all issuers serviced, the transfer agent may also need to make reports 

to its ARA pursuant to Rule 17Ad-11(c).329 

 

326 Exchange Act Rule 17Ad-10(b), 17 CFR 240.17Ad-10(b). We also note that, as part of a transfer agent’s 

obligation to monitor against overissuances, Rule 17Ad-10(g) imposes buy-in obligations when an actual 

physical overissuance has occurred that was caused by the transfer agent. Exchange Act Rule 17Ad-10(g), 

17 CFR 240.17Ad-10(g). There are limited exceptions to this requirement. See Exchange Act Rules 

17Ad-10(g)(2)-(3), 17 CFR 240.17Ad-10(g)(2)-(3).

327 Exchange Act Rule 17Ad-11(a)(2), 17 CFR 240.17Ad-11(a)(2).

328 Exchange Act Rule 17Ad-11(b), 17 CFR 240.17Ad-11(b). Rule 17Ad-11(b) also requires, without 

imposing any minimum threshold as with the amount of aged record differences, that the transfer agent 

report to issuers concerning any securities bought-in pursuant to Rule 17Ad-10(g) or reported as bought-in 

pursuant to Rule17Ad-10(c) during the preceding month.

329 Exchange Act Rule 17Ad-11(c), 17 CFR 240.17Ad-11(c). The report to the ARA must also include 

information concerning buy-ins required by Rule 17Ad-10 (g) when the aggregate market value of all buyins during a calendar quarter exceeds $100,000. Id.
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2. Securities Transfers, Exchanges, and Conversions: Rules 17Ad-9, 10, 

12, and 19

Transfer agents are integrally involved in effecting transfers of ownership of securities, as 

well as exchanging and converting securities.330 For example, an equity sale would usually 

involve a transfer. In contrast, a stock-for-stock merger, where the equity security of Company 

A is exchanged for an equity security of Company B (and Company B is the disappearing 

company) would involve an exchange. Finally, a securityholder’s election to convert a 

convertible debt security into an equity security would usually involve a conversion. While 

these transfer agent services vary in terms of definition, the transfer agent rules apply to all of 

them in substantially similar ways. Therefore, for the purposes of describing all of these services 

in the discussion that follows, we will focus on the activities and rules applicable to transfers. 

In connection with transfers of certificated securities, the first steps in the transfer process 

are to match the certificate detail with the master securityholder file, verify the signature 

guarantee, and then cancel the negotiable certificate that has been presented for transfer. With 

respect to verifying the signature, presentation by the transferor typically involves providing the 

transfer agent an indorsed security certificate bearing a medallion stamp. In some cases, the 

indorsement and assignment may be made not on the certificate itself but by an executed power 

of attorney authorizing the transfer of ownership on the books of the issuer.331 

 

330 The terms “exchange” and “conversion” are used in Exchange Act Section 3(a)(25) and in the 

Commission’s transfer agent rules but are not defined in the Commission’s transfer agent rules. The term 

“exchange” is commonly used to refer to the trading of specific securities for another asset, usually without 

an accompanying change in ownership. The term “conversion” is commonly used to refer to the changing 

into or substitution of one security for another security or asset under specific conditions, also without an 

accompanying change in ownership.

331 See supra note 18 (regarding powers of attorney). 
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Rule 17Ad-19 governs certificate cancellation and requires that “every transfer agent 

involved in the handling, processing, or storage of securities certificates shall establish and 

implement written procedures for the cancellation, storage, transportation, destruction, or other 

disposition of securities certificates.”332 The rule grants transfer agents flexibility to develop 

their own procedures, but depending on which procedures they adopt (i.e., cancellation, 

destruction, or other disposition), they must comply with minimum requirements regarding three 

general areas: (i) the manner of cancellation and destruction of certificates; (ii) the storage and 

transport of cancelled certificates; and (iii) recordkeeping with respect to cancelled 

certificates.333

Rule 17Ad-12 governs the safeguarding of cancelled certificates. First, certificates that 

are cancelled generally must be stamped or perforated with the word “CANCELLED” and, for 

any cancelled certificate that is subsequently destroyed, the destruction of certificates must be 

witnessed by authorized personnel of the transfer agent or its designee.334 Second, transfer 

agents must control access to the location where cancelled certificates are kept and transport of 

cancelled certificates must be made in a “secure manner.”335 If cancelled certificates are not 

 

332 Exchange Act Rule 17Ad-19(b), 17 CFR 240.17Ad-19(b). 

333 Id.

334 Exchange Act Rules 17Ad-19(c)(2), (6), 17 CFR 17.24017Ad-19(c)(2), (6). The requirement to stamp or 

perforate the certificate as cancelled does not apply where “the transfer agent has procedures adopted 

pursuant to this rule for the destruction of cancelled certificates within three business days of their 

cancellation.” In addition, a certificate may be marked “cancelled” and stored for a period of time before 

being destroyed.

335 Exchange Act Rules 17Ad-19(c)(1), (5), 17 CFR 240.17Ad-19(c)(1), (5).
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destroyed, they must be retained for six years pursuant to Rule 17Ad-7(d).336 Furthermore, Rule 

17Ad-12 requires that cancelled certificates be “held in safekeeping and...handled, in light of all 

facts and circumstances, in a manner reasonably free from risk of theft, loss or destruction (other 

than by a transfer agent's certificate destruction procedures pursuant to § 240.17Ad-19).” Third, 

transfer agents must keep a record regarding each cancelled certificate that is in transit and 

records for each cancelled certificate and destroyed certificate that in both cases are “indexed and

retrievable by CUSIP and certificate number.”337 These records must be kept for three years. 

Once the old certificate has been cancelled, the next step in the transfer of a certificated 

security will generally involve recording the change of record ownership of the relevant 

securities on the master securityholder file. In the context of certificated securities, this is done

by debiting the securities account of the transferor. Rule 17Ad-9(f) defines the term “debit” as 

“a cancellation of appropriate certificate detail from the master securityholder file.” Because the 

cancellation date is one of the defined elements of certificate detail under Rule 17Ad-9, together 

 

336 We note that when the Commission adopted Rule 17Ad-19 in 2003 addressing among other things the 

destruction of certificates, it did not amend Rule 17Ad-7(d) to delete the requirement to retain cancelled 

security certificates for six years. But concurrently in 2003, the Commission amended Rule 17Ad-7(f) such 

that “the records required to be maintained pursuant to § 240.17Ad-6 may be retained using electronic or 

micrographic media....” See Exchange Act Rule 17Ad-7(f), 17 CFR 240.17Ad-7(f); Recordkeeping 

Requirements for Transfer Agents, supra note 215. We understand that many transfer agents today follow 

a practice of destroying certificates after a period of time in accordance with their individual policies and in 

compliance with Rule 17Ad-19 but keep electronic copies of the cancelled certificate by imaging it to 

comply with Rule 17Ad-7 as well as keeping the records required by Rule 17Ad-19(c)(4) for destroyed 

certificates.

337 Exchange Act Rule 17Ad-9(c)(5), 17 CFR 240.17Ad-9(c)(5). The record regarding cancelled 

certificates in transit must show the certificate numbers and CUSIP numbers. The records 

regarding both cancelled certificates and destroyed certificates must include “the CUSIP number,

certificate number with any prefix or suffix, denomination, registration, issue date, and 

cancellation date.” Exchange Act Rules 17Ad-9(c)(3)-(4), 17 CFR 240.17Ad-9(c)(3)-(4). 
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Rules 17Ad-9(a)(6) and 17Ad-10 have the effect of requiring that the cancellation date be posted 

to the master securityholder file, generally within five business days.338 

The final step in the process of completing a transfer for a certificated security is for the 

transfer agent to issue (on behalf of the issuer) a new security to the transferee. The transfer 

agent’s role in connection with the issuance stage of transfer is discussed in more detail in the 

next section below.

For uncertificated securities, transfer agents do not issue or cancel physical securities 

certificates when transferring securities. Instead, they effect book-entry transfers by registering 

the change in ownership on the master securityholder file, which does not involve the physical 

issuance and cancelling of securities certificates. The term “registering” means an official form 

of recording by a person charged with that function, which is accomplished under Exchange Act 

Rules 17Ad-9(h) and 17Ad-10(e) by updating the master securityholder file, as discussed above. 

Book-entry transfer may be accomplished through DTC’s DRS using DTC’s Profile system.

339 

Once the transfer has been effected, the investor would receive from the transfer agent a 

statement of ownership that acknowledges his or her new DRS position. 

3. Securities Issuance: Rules 17Ad-1 and 2

Transfer agents are also involved in the issuance of securities, which may be one of the 

final stages before completing a transfer, as discussed above, or could involve a primary offering 

 

338 Exchange Act Rules 17Ad-9-10, 17 CFR 240.17Ad-9-10. Moreover, Congress in the Dodd-Frank Act has 

taken another step to tighten recordkeeping of cancelled securities by adding “cancelled” securities as a 

category of securities that must be reported to the Commission or its designee. See Exchange Act Section 

17(f)(1), 78 U.S.C. 187(f)(1).

339 See supra note 93.
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of securities such as an initial public offering. Generally, from the perspective of the transfer 

agent facilitating a transfer, issuance will involve a credit to the transferee’s securities account, 

as compared to the cancellation and transfer processes discussed above, which involve debiting 

the securities account of the transferor. 

The clock for turnaround under Rules 17Ad-1 and 17Ad-2 begins when a transfer agent 

receives an item and ends when a transfer agent issues the new security. Thus, from the transfer 

agent’s perspective, issuance is what stops the clock. Rule 17Ad-2(a) generally has the effect of 

imposing a three day deadline on turnaround of transfer of a routine item.340 Rule 17Ad-1 

provides in general terms that turnaround is achieved “when transfer is accomplished.”341 In 

turn, “transfer is accomplished” when “all acts necessary to cancel the certificate or certificates 

presented for transfer and to issue a new certificate or certificates...are completed and the item is 

made available to the presentor by the transfer agent...”342 Thus, with certain exceptions, the 

“made available” standard 343 functions similar to a “mailbox” rule because the item is 

considered to have been made available when the transfer agent mails the new certificate to the 

transferee (or otherwise makes it available). 

 

340 If a transfer agent fails to turnaround 90% of routine items received during a month within three business 

days of receipt, certain sanctions apply. See discussion supra Section IV.B for additional details on the 

turnaround requirements and requirements in the event of failure to meet the turnaround requirements. 

341 Rule 17Ad-1(c)(2) applies a different measurement of when turnaround is achieved when an outside 

registrar is involved: instead of the clock stopping when the new certificate is presented to the transferee, it 

stops when the item is “made available” to the outside registrar. Thus, turnaround will be accomplished 

when the transfer agent “completes all acts necessary to cancel the certificate or certificates presented for 

transfer and to issue a new certificate or certificates, and the item is made available to an outside registrar.”

Exchange Act Rule 17Ad-1(c)(2), 17 CFR 240.17Ad-1(c)(2). 

342 If the presentor has given special instructions, the timing is measured differently. See Exchange Act Rule 

17Ad-1(d), 17 CFR 240.17Ad-1(d).

343 See Exchange Act Rule 17Ad-1(c)(1), 17 CFR 240.17Ad-1(c)(1). 
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Upon issuing the new security to the transferee, the transfer agent must credit the 

securities account of the transferee receiving the new security. This is accomplished by posting 

to the master securityholder file all of the certificate detail information set forth in Rule 17Ad9(a), generally within five business days.

344 

In the case of an uncertificated security, there is no certificate to cancel and no new 

certificate to be issued. Under Rule 17Ad-1(d), posting the new ownership information to the 

master securityholder file changes the ownership information of the securities account and

“completes registration of change in ownership of all or a portion of those securities.” 

Transfer agents are also responsible for countersigning securities upon issuance, which 

provides critical authentication of a security by an independent, outside actor. In general, 

“countersigning” means a signature added to a document previously signed by another person for 

authentication or confirmation. The second signature confirms the first signature, and the two 

signatures together are intended to show the certificate’s legitimacy. In the case of certificated 

securities, the first signer is typically an officer of the issuing corporation, and the countersigner 

is typically an independent officer of the issuer’s transfer agent. The procedures involved in 

countersignature of physical certificates are not mandated by the Exchange Act,

345 but are 

 

344 See Exchange Act Rules 17Ad-9(a), 17Ad-10, 17 CFR 240.17Ad-9(a), 17Ad-10. We note that, in the case 

of a cancellation, which involves a “debit” to the master securityholder file under Rule 17Ad-9, the 

cancellation date would be the only portion of the “certificate detail” required to be posted to the master 

securityholder file. See Exchange Act Rule 17Ad-9, 17 CFR 240.17Ad-9. 

345 As discussed in Section IV.A, the Exchange Act, however, includes countersigning certificates as one 

element of the definition of transfer agent in Section 3(a)(25).
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generally the product of other sources of law that either require them or otherwise address them 

in certain respects, such as by permitting them to be made by facsimile.

346

In the case of DRS shares, where no certificate exists, an investor has the option of 

having his or her ownership of securities registered in book-entry form on the issuer’s records or 

on the books of the issuer’s transfer agent, and in either case the investor receives a “statement of 

ownership.”347 In either event, it is an important verification step in the issuance of a security 

and highlights the important role that transfer agents play as intermediaries for the public 

interest.

4. Corporate Actions and Related Services: Rules 17Ad-1, 6, 10, 12, and 

13

A corporate action is an event in the life of a security, typically instigated by the issuer, 

which affects a position in that security.348 Examples of common corporate actions include 

changes that affect capital structure, such as a merger or acquisition, and distributions to 

securityholders, such as a dividend distribution or principal or interest payment on a debt 

security. Corporate actions may also include bankruptcy or liquidation proceedings, 

conversions, warrants, exchange offers, subscription rights, tender offers, and other events.

349 

Generally, corporate actions can be divided into two broad categories: mandatory and voluntary 

(sometimes referred to as “elective.”) Mandatory corporate actions usually affect all 

 

346 See, e.g., Del. Code Ann. tit. 8 § 158 (“Any or all the signatures on the certificate may be a facsimile.”). 

347 See Concept Release, Transfer Agents Operating Direct Registration System, Exchange Act Release No. 

35038 (Dec. 1, 1994), 59 FR 63652 (Dec. 8, 1994) (“Investors who choose to participate in a direct 

registration system could have their securities registered in book-entry form directly on the books of the 

issuer and could receive a statement of ownership in lieu of a securities certificate.”). 

348 Simmons and Dalgleish, Corporate Actions: A Guide to Securities Event Management 3-5 (2006). 

349 See id. (categorizing major types of corporate actions). 
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securityholders equally and the securityholder does not have different options from which to 

choose; voluntary corporate actions usually allow securityholders to choose among one or more 

different elections they can make.

Transfer agents may perform a variety of roles and provide a variety of services, 

depending on the type and nature of the corporate action. For example, a transfer agent may take 

on the role of exchange agent in a mandatory corporate action, such as a stock-for-stock merger

or a cash-for-stock merger. In a stock-for-stock merger the exchange agent might facilitate the 

surrender of outstanding securities for new securities, and in a cash-for-stock merger the 

exchange agent might facilitate the exchange of outstanding securities for cash. 

In both of these examples, under Rule 17Ad-10, the transfer agent performing exchange 

agent services generally must update the master securityholder file with certificate details within 

five business days. But because the transfer associated with some of the most common corporate 

actions qualify as non-routine items under Rule 17Ad-1, including transfers “in connection with 

a reorganization, tender offer, exchange, redemption, or liquidation,”350 the general three 

business day deadline for turnaround of routine items under Rule 17Ad-2 may not apply. 

However, if a transfer agent makes a determination that a transfer does fall within Rule 17Ad1(i)(5) and therefore is non-routine, Rule 17Ad-6(a)(11) requires the transfer agent to maintain 

records documenting the basis for this determination.351 Other aspects of the processing of the 

 

350 Exchange Act Rule 17Ad-1(i)(5), 17 CFR 240.17Ad-1(i)(5).

351 A large portion of specific records that transfer agents are required to maintain under Rule 17Ad-6 and to 

retain for different periods of time under Rule 17Ad-7 relate to: (i) the classification of an item as routine or 

non-routine; (ii) tracking the compliance of the transfer agent with the performance standards for 

turnaround of routine items under Rule 17Ad-2(a); and (iii) the performance standards for processing of all 

items pursuant to Rule 17Ad-2(b). 
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corporate action may cause the corporate action to be classified as non-routine as well. For 

example, if a transfer associated with a corporate action involves a need to review “explanations, 

or opinions of counsel before transfer may be effected,” requires “review of supporting 

documentation” other than routine documentation, or includes a warrant, right, or convertible 

security “presented for exercise or conversion” or “presented for transfer...within five business 

days” before expiry it will be considered non-routine under Rule 17Ad-1.352 

Voluntary corporate actions, which permit securityholders to choose among different 

options, may result in the need for additional tasks and systems for transfer agents to process 

them. For example, in addition to the ordinary recordkeeping tasks, the transfer agent may be 

responsible for monitoring whether elections have been made by deadlines and for tracking such 

elections.

In addition to the examples discussed above, transfer agent roles in connection with 

corporate actions may also include serving as: (i) tender agent, when the transfer agent collects 

shares surrendered from securityholders and makes payments for the shares at a predetermined 

price; (ii) exchange agent, when the transfer agent collects shares surrendered from 

securityholders and issues, registers, and/or distributes shares of the bidding company’s 

securities as compensation for tendered securities of the subject company; (iii) subscription 

agent, when the transfer agent invites existing equity securityholders of an issuer to subscribe to 

a new issuance of additional debt or equity of the issuer; (iv) conversion agent, for example 

when the transfer agent converts debt securities into equity securities; and (v) escrow agent, 

 

352 Exchange Act Rule 17Ad-1(i), 17 CFR 17Ad-1(i).
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when the transfer agent holds an asset on behalf of one party for delivery to another party upon 

specified conditions or events.

Finally, transfer agents providing corporate action services may be subject to Rule 17Ad12 and 17Ad-13, regarding safeguarding requirements for funds and securities and an annual 

audit of internal control of safeguarding procedures. As discussed above, corporate actions may 

involve transfer agents making distributions on behalf of issuers to securityholders of cash and 

stock dividends as well as principal and interest payments on debt securities. Rule 17Ad-12(a) 

requires that:

Any registered transfer agent that has custody or possession 

of any funds or securities related to its transfer agent 

activities shall assure that: (1) All such securities are held 

in safekeeping and are handled, in light of all facts and 

circumstances, in a manner reasonably free from risk of 

theft, loss or destruction...; and (2) All such funds are 

protected, in light of all facts and circumstances, against 

misuse. 

Rule 17Ad-13 requires every registered transfer agent to file an annual report with the 

Commission and the transfer agent's ARA prepared by an independent accountant concerning the 

transfer agent's system of internal accounting controls and procedures for, among other things, 

safeguarding of securities and funds. Specifically, Rule 17Ad-13(a)(2)(iii) requires the report to 

cover “[t]ransferring record ownership as a result of corporate actions” and Rule 17Ad13(a)(2)(iv) requires the report to cover “[d]ividend disbursement or interest paying-agent 

activities.”

B. Annual Meeting, Proxy-Related Services, and Securityholder Services and 

Communications

One of the key rights of securityholders is the right to vote their shares on important 

matters that affect the companies they own. Pursuant to state corporate law, registered 
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securityholders may either attend a meeting to vote shares in person or authorize an agent to act 

as their “proxy” at the meeting to vote their shares pursuant to their voting instructions.353 

Because most securityholders do not physically attend public company securityholder meetings, 

the corporate proxy is the principal means by which they exercise their voting rights. 

The process in the United States for distributing proxy materials and soliciting, 

tabulating, and verifying votes by securityholders is complex, especially with respect to 

beneficial securityholders.

354 Most corporate issuers and securities intermediaries such as banks 

and brokers rely on a proxy service firm to perform these functions, which may include 

distributing and forwarding the proxy materials and collecting and tabulating voting instructions. 

Alternatively, some issuers choose to engage their transfer agents for certain parts of the proxy 

distribution process, such as printing and distributing proxy materials either directly to registered 

securityholders or to intermediaries, which will then distribute them to beneficial owners either 

through the mail or electronically.355 Providing these services may be a natural extension of a 

transfer agent’s core functions because most transfer agents will already possess and maintain 

the master securityholder file listing the issuer’s registered securityholders, will have the 

infrastructure in place to communicate with registered securityholders, and will be in a position 

 

353 See Del. Code Ann. tit. 8, §212 (b), (c). A full discussion of the proxy system is beyond the scope. For 

more information on the proxy system, see Proxy Concept Release, supra note 112. 

354 Beneficial owners holding securities in street name are not technically entitled to vote shares or grant proxy 

authority. Rather, the voting rights reside with Cede & Co. as the record owner of all street name shares. 

However, because Cede & Co.’s role is only that of nominee for DTC as custodian and it has no beneficial 

interest in the shares, mechanisms have been developed in order to pass the legal rights it holds as the 

record owner to the beneficial owners, enabling them to vote. For a more comprehensive discussion of 

these and other issues relating to the U.S. proxy and indirect holding systems, see Proxy Concept Release, 

supra note 112. 

355 See, e.g., Broadridge Annual Report 2015 (2015), available at http://www.broadridgeir.com/~/media/Files/B/Broadridge-IR/annual-reports/ar-2015.pdf.
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to reconcile the identity of registered voters and the number of votes against the official records 

of the issuer.356 Typical transfer agent proxy services might include mailing or electronically 

transmitting notices of meetings,357 proxy statements, and proxy cards358 to securityholders. 

In addition, under many state statutes, an issuer must appoint a vote tabulator (sometimes 

referred to as the “inspector of elections” or “proxy tabulator”) to collect and tabulate the proxy 

votes as well as ballot votes cast in person by registered owners at a securityholder meeting.359 

As with proxy distribution services, some issuers hire their transfer agent to create sophisticated 

voting platforms for securityholders or to act as the vote tabulator.360 The vote tabulator is 

ultimately responsible for determining whether shares are represented at the meeting, the validity 

of proxies received, and tallying the votes.361 The tabulator must determine that the correct 

 

356 See Proxy Concept Release, supra note 112. See Proxy Tabulation and Solicitation, AST, 

http://www.amstock.com/corporate/corporate_proxy.asp (last visited November 20, 2015). 

357 See, e.g., Del. Code Ann. tit. 8, § 222 (2001). See also Del. Code Ann. tit. 8, § 232 (2001).

358 In cases where the issuer is relying upon the notice and access model of proxy statement distribution, the 

proxy card must be mailed even if the proxy statement is not mailed by the issuer. See Final Rule: Internet 

Availability of Proxy Materials, Exchange Act Release No. 55146, 10 (Jan. 22, 2007), 72 FR 4148 (Jan. 29, 

2007).

359 See, e.g., Del. Code Ann. tit. 8, § 231(a)-(c)(2001) (inspectors must be appointed in advance of all 

stockholder meetings of publicly held corporations and have responsibility for ascertaining the number of 

shares outstanding and the voting power of each, determining the shares represented at the meeting and the 

validity of proxies and ballots, counting all votes and ballots, creating and retaining a record of the 

disposition of any challenges made to any determination of the inspectors, and certifying their 

determination of the number of shares represented at the meeting and the count of all votes and ballots). 

360 Sometimes the issuer will hire an independent third party other than the transfer agent to perform the proxy 

tabulation function, such as to certify important votes. In such cases, the issuer or its transfer agent 

typically will provide the third party vote tabulator with the list of record owners so the vote tabulator can 

make this determination. Additionally, in contested votes, the issuer will commonly retain an independent 

inspector to count the proxies. See, e.g., www.ivsassociates.com/html/index2.htm. 

361 See, e.g., Del. Code Ann. tit. 8, § 231(2001); see also Marcel Kahan & Edward B. Rock, The Hanging 

Chads of Corporate Voting, 96 Geo. L.J. 1227, 1235 (2008) (“Where more than one valid proxy is given 

for a share, the later proxy revokes the earlier proxy. Determining the validity of proxies and the tally of 

votes is the responsibility of the inspector, appointed by the corporation.”), available at

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1007065. 
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number of votes has been submitted by each registered owner and determine that proxies 

submitted by securities intermediaries that are not registered owners are reconciled with DTC’s 

securities position listing for that intermediary (i.e., determining that the number of nominee 

shares voted equals the number of shares that DTC indicates are held in nominee name).362 

Although the Commission does regulate transfer agents, which often serve as vote tabulators, it

does not regulate the function of tabulating proxies by transfer agents.

All transfer agents also provide some level of securityholder communications services. 

The level of services may depend on the type or size of the issuer, but at a minimum, most 

transfer agents facilitate the mailing of quarterly and annual statements with details of holdings, 

transaction confirmations, and letters or communications confirming other transactions, such as 

address-change confirmations. Many transfer agents also provide tax reporting services, 

including sending tax forms such as W-9, W-8BEN, 1099-DIV, and 1099-B. 

Most transfer agents also receive and respond to inquiries and requests by securityholders 

and non-securityholders,

363 often through interactive websites, call centers, and the like. 

Requests may involve a transfer (for example, a gift of fund shares from one family member to 

another) or a change in the securityholder’s account, such as an address change or different 

election regarding dividend reinvestment. For transfer agents to open-end mutual funds,

transfers may involve a purchase (i.e., a “subscription”) or sale (i.e., a “redemption”) of the 

 

362 See Proxy Concept Release, supra note 112. See, e.g., 

http://www.amstock.com/corporate/corporate_proxy.asp. 

363 As discussed supra Section IV.A, several Commission rules address securityholder inquiries. See

Exchange Act Rule 17Ad-5, 17 CFR 240.17Ad-5 (written inquiries and requests); Exchange Act Rules 

17Ad-6, 7, 17 U.S.C. 240.17Ad-6, 7 (recordkeeping and retention requirements regarding inquiries and 

requests).
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fund’s shares.364 Transfer agents may receive inquiries as well, which may not require 

processing a transaction or account change, but may involve merely answering questions about 

the securityholder’s account or regarding the issuer generally.

365 Requests and inquiries are 

transmitted to transfer agents through various methods, including by telephone, mail, facsimile, 

email, internet, mobile communication device, and in-person. The predominance of telephone 

and other forms of electronic communication as favored methods for securityholders to 

communicate with issuers and their transfer agents, including the use of standardized protocols 

over the internet, means that managing sizable call centers and other customer service 

departments, with many representatives fielding calls and other message-traffic, has become a 

critical aspect of the transfer agent-issuer relationship. 

One aspect of these securityholder services is lost certificate replacement. If a 

securityholder loses a certificate, the old certificate must be cancelled and new shares issued, 

either in certificated or book-entry form. Transfer agents facilitate this process by processing the 

request and replacing the lost or missing certificate. Generally, the securityholder will be 

required to fill out a declaration, affidavit, or other form with identifying information and a 

description of the circumstances giving rise to the loss and pay a fee to the transfer agent for 

processing the request. Most transfer agents will also require a surety bond to indemnify the 

issuer and transfer agent against any potential losses in connection with the missing or 

replacement certificate in the event it is later presented for transfer or conversion. The transfer 

 

364 For additional discussion of “transfers,” see supra Section IV.A.2. 

365 Inquiries about the securityholder’s account may relate, for example, to matters such as dividend 

reinvestment or other account options. 
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agent will then report the lost or missing certificate to SIC pursuant to Rule 17f-1, as described 

above in Section II.B. 

C. Regulatory Compliance and Reporting

Although not addressed directly in the transfer agent rules, most transfer agents today 

provide assistance with issuers’ obligations to comply with various state and federal laws, 

including the federal securities laws, because many issuer compliance obligations fall directly 

into areas in which the transfer agent is already providing services to the issuer. For example, 

transfer agents may use their mailing and fulfillment services to help issuers meet their 

obligations to deliver certain documents to securityholders.

366 Transfer agents may also use their 

existing recordkeeping capabilities to help issuers meet obligations regarding disclosure of 

securityholders owning more than a certain threshold of ownership.367 Further, investment 

company issuers subject to anti-money laundering responsibilities under federal law may rely on 

transfer agents to assist their compliance since this function is closely related to the new account 

processing services and securityholder recordkeeping services transfer agents provide to these 

issuers. 

Finally, transfer agents spend a much greater amount of time and resources on assisting 

issuers with their escheatment obligations under state law than they have done historically. 

Escheatment is the process of transferring abandoned property to the state or territory. All 50 

 

366 See, e.g., Exchange Act Rule 14c-3, 17 CFR 240.14c-3 (annual report to be furnished securityholders); 

Investment Company Act Rule 30e-1, 17 CFR 270.30e-1 (reports to stockholders of management 

companies); Investment Company Act Rule 30e-2, 17 CFR 270.30e-2 (reports to shareholders of unit

investment trusts).

367 See, e.g., SEC Form N-1A, Item 18 (Control Persons and Principal Holders of Securities), SEC Form 10-K, 

Item 12 (Security Ownership of Certain Beneficial Owners and Management and Related Stockholder 

Matters).
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states, Washington, DC, Puerto Rico, and all U.S. territories have abandoned property laws 

which apply to any type of holding, including stock and associated payments made to 

securityholders, such as dividend payments. When a property owner fails to demonstrate 

ownership of property—for example, by not cashing dividend checks or responding to 

mailings—for a period of time, that property is deemed abandoned and is turned over to the state. 

The state then converts the property to cash within 30 days to two years. A securityholder who 

is holding securities that have been escheated will only be able to reclaim the sale price the state 

received, without interest, not the securities themselves.368 

Pursuant to these abandoned property laws, issuers, through their transfer agents, are 

required to report when property is deemed to be abandoned based on the applicable abandoned 

property statute. Thus, issuers are required to file abandoned property reports annually with the 

individual states and U.S. territories, and to turn over abandoned property according to individual 

state laws. Failure to file on time can result in significant penalties and interest fees per year. 

Transfer agents typically assist issuers with initial escheatment filings with the states in 

which securityholders have abandoned property, and then an annual filing every year after that 

with those states. In addition to fulfilling reporting requirements, typical activities may include 

attempted communications with the securityholder, maintaining up-to-date knowledge of federal 

and state escheatment requirements, proper accounting and handling of property prior to 

escheatment, and appropriate transfer of property.

 

368 See, e.g., Cal. Civ. Proc. Code §§ 1500 et. seq. (California’s requirements); Tex. Prop. Code Ann. §§ 72-76 

(Texas’ requirements). We note also that Rule 17Ad-17 requires transfer agents to make certain efforts to 

locate lost securityholders. 
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VI. ADVANCE NOTICE OF PROPOSED RULEMAKING

An advance notice of proposed rulemaking provides notice to the public that the agency 

is considering rulemaking in an area so that the public can participate in the formulation of 

potential future rules and can help shape a future notice of proposed rulemaking. Through this 

advance notice of proposed rulemaking, the Commission is requesting comment on specific 

areas and topics with respect to transfer agent regulation. As noted earlier, the Commission then 

intends to review comments and to then propose new rules, as soon as is practicable, either 

individually or in groups or phases to expedite the rulemaking process.

In particular, based on our current understanding of transfer agents and their functions, 

the Commission intends to propose new or amended rules to: (1) expand the scope of

information collected by Forms TA-1 and TA-2 and capture all such information in a structured, 

electronic format as needed to enhance aggregation, comparison, and analysis; (2) require that 

any arrangement for transfer agent services between a registered transfer agent and an issuer be 

set forth in a written agreement that addresses topics such as the transfer agent services to be 

provided, the fee schedule, and requirements for the handing over of transfer agent records to the 

successor transfer agent; (3) enhance transfer agents’ requirements for the safeguarding of issuer 

and securityholder funds and securities; (4) apply an anti-fraud provision to specific activities of 

transfer agents; (5) require transfer agents to establish business continuity and disaster recovery 

plans; (6) require transfer agents to establish basic procedures regarding the use of information 

technology, including methods of safeguarding personally identifiable information; (7) revise the 

recordkeeping requirements to more fully capture the scope of a transfer agent’s business 

activities; and (8) conform and update various terms and definitions to reflect modern systems 

and usage, as well as the elimination of obsolete rules, such as those addressing Y2K issues. 
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In addition to the specific requests for comments in each section below, we also seek 

comment on the following: 

1. For all regulatory issues discussed below, please comment on the need for 

revisions to the current regulatory framework, including the proposals described 

above, and the benefits they could provide for transfer agents, investors, issuers, 

and the capital markets. In particular, please comment on whether the proposals 

will increase the prompt and accurate clearance and settlement of securities 

transactions or have other benefits, such as reducing the potential for fraudulent 

activity. Please also comment on the potential effects on efficiency, competition, 

and capital formation of potential revisions to the current regulatory framework, if 

any. If you wish to comment on such potential benefits and effects, please 

explain the implications of any impact on competition, economic efficiency, 

capital formation, and the behavior of affected market participants, including 

transfer agents, issuers, and investors. For each benefit, effect and implication, 

provide supporting evidence and/or explain how such evidence may be obtained. 

Also please describe the current competitive landscape for each such affected 

transfer agent service. For example, to the extent possible, provide evidence on 

the identities of current providers, their market shares, their ease or cost of entry 

and exit, the cost to issuers of switching transfer agents, and the frequency of any 

such switching. Are there any other issues that are not discussed below but that 

should be addressed? If so, what are they and how should they be addressed? 

2. For all regulatory issues discussed below, please comment on any potential 

interplay between applicable SRO rules and the potential revisions to the current 

regulatory framework for transfer agents discussed herein, including any potential 

conflicts that should be considered or resolved. Please provide a full explanation. 

3. Are there specific areas where transfer agents need additional guidance or 

regulatory clarity regarding the applicability of current rules? How could such 

guidance best be provided? Would rule modification, staff guidance, or an 

industry roundtable be helpful?

4. Should the Commission prioritize certain of the proposed rule changes discussed 

in this Advance Notice of Proposed Rulemaking over others? If so, which ones

and why? Are there other rule changes besides those discussed in this Advance 

Notice of Proposed Rulemaking that the Commission should prioritize? Please 

explain.

A. Registration and Annual Reporting Requirements

As discussed generally above in Section IV.A, Forms TA-1 and TA-2 are used to: (i) help 

regulators, issuers, investors, and other interested parties determine whether a transfer agent is 
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and will continue to be able to perform its functions properly; (ii) help regulators, issuers, 

investors, and other interested parties determine the nature of the business conducted by a 

particular transfer agent; (iii) permit the Commission to effectively target its transfer agent 

inspection program, including assisting examiners in preparing for and conducting transfer agent 

examinations; (iv) monitor transfer agent activity generally; (v) enable Commission staff to 

evaluate particular burdens and benefits that would be placed on the industry in potential 

rulemaking endeavors; and (vi) assist the Commission and Commission staff in assuring that

rules are properly focused and refined.369 Form TA-1 was developed and first adopted in 

1975370 and Form TA-2 was first adopted in 1986.371 The information provided by these forms 

serves, among others, the vital regulatory goals of informing the Commission’s oversight and 

examination programs and informing the public about the nature and scope of transfer agents’ 

activities. The Commissions believes the usefulness and utility of both forms in serving these 

important goals might be enhanced if they captured certain additional information, such as

financial information, potential conflicts of interest, and detailed information about the types of 

services being provided and to whom. 

To assure that Forms TA-1 and TA-2 continue to serve the regulatory goals described 

above, especially in light of the expanded scope of transfer agents’ activities as discussed 

throughout this release, the Commission intends to propose amendments to the forms to include 

 

369 See, e.g., Adoption of Revised Transfer Agent Forms and Related Rules, supra note 161.

370 See Notice of Adoption of Rule 17Ac2-1 and Related Form TA-1 under the Securities Exchange Act of 

1934 Providing for the Registration of Transfer Agents for which the Commission is the Appropriate 

Regulatory Agency, Exchange Act Release No. 11759 (Oct. 22, 1975), 40 FR 51181 (Nov. 4, 1975).

371 See Adoption of Revised Transfer Agent Forms and Related Rules, supra note 161.
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disclosure requirements with respect to certain financial information, such as the financial 

reports discussed below in Section VI.C (e.g., statements of financial condition, income, and 

cash flows), all direct or indirect conflicts of interest, the issuers and securities for which a 

transfer agent is providing transfer agent and other services, and the specific services being 

provided or expected to be provided for each issuer or security, regardless of the nature of those 

services. These anticipated amendments are intended to facilitate disclosure that is more closely 

targeted at risks associated with contemporary transfer agent activities. 

A requirement that transfer agents and their officers and directors disclose any past or 

present affiliation with issuers serviced by, or broker-dealers affiliated with, the transfer agent 

could reveal instances where a transfer agent or its officers and directors have an ownership 

interest in such issuers and broker-dealers, including details about how the interest was 

obtained. Such disclosures could provide transparency about the existence of possible financial 

interests or other potential conflicts of interest that could incentivize a transfer agent to facilitate 

an improper transfer or engage in other improper conduct.

Financial disclosures may include annual financial statements using a data-tagged format, 

such as XBRL, broken out by the asset classes serviced by the transfer agent, such as equities, 

debt, and investment companies. 

The Commission seeks comment on the following: 

5. Should the Commission require any of the registration and disclosure items 

discussed above? Why or why not? Should the Commission consider other 

requirements? Please explain. What would be the benefits and costs associated 

with any such requirements? Please provide empirical data. If the Commission 

were to require transfer agents to disclose financial information, what information 

should be required, and why? Would requiring such information to be disclosed 

on Forms TA-1 and/or TA-2 be an effective and appropriate measure? What 

would be the benefits and costs associated with any such requirement? 

6. Should the Commission consider amending the registration process to allow for 
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the issuance of an order approving a transfer agent’s TA-1 application before that 

application becomes effective, rather than having such applications become 

effective automatically after 30 days? Should the Commission consider making 

certain findings before approving a transfer agent’s application? If so, what 

should those findings be? Should the Commission impose threshold requirements 

that transfer agents must satisfy before their applications can become effective? If 

so, what would they be?

7. The Commission intends to propose to require transfer agents to submit annual 

financial statements. Should these statements be required to be audited? Why or 

why not? 

8. Should the Commission require that annual financial statements be submitted 

using a data-tagged format such as XML or XBRL? Would such a requirement 

require changes to the U.S. GAAP Taxonomy in order to capture the information 

included in transfer agents’ financial statements? Why or why not? Should some 

other electronic format be required or permitted?

9. Does the receipt of securities as payment for services create conflicts of interest 

for transfer agents, and if so, should the Commission require that such payments 

be disclosed? The Commission intends to propose to amend Forms TA-1 and/or 

TA-2 to require transfer agents to disclose all actual and potential conflicts of 

interest. Should it do so? Why or why not? Should the Commission provide any 

guidance as to what constitutes a conflict of interest? Why or why not? Has the 

proliferation of the types of services offered by transfer agents in recent years 

created new conflicts of interest? How might transfer agents’ conflicts of interest 

differ depending upon whether the transfer agent is paid by the issuer, the 

shareholder, or some combination thereof? Is disclosure of conflicts of interest a 

sufficient safeguard for investors? Should the Commission ban certain conflicts 

of interest entirely? For example, should the Commission prohibit transfer agents 

from having certain affiliations with issuers or broker-dealers, or from providing 

certain services if they have such affiliations? Please provide a full explanation.

10. Should the Commission amend Forms TA-1 and/or TA-2 to require transfer 

agents to disclose information regarding the fees imposed or charged by the 

transfer agent for various services or activities? If so, what type of information or 

level of detail should be required? Should the Commission require that fee 

disclosures be standardized to facilitate comparison? Should fees charged to both 

issuers and directly to shareholders be required to be disclosed? Please provide a 

full explanation.

11. To increase the ability of the Commission to monitor trends, gather data and 

address emerging regulatory issues, should the Commission require registered 

transfer agents to file material contracts with the Commission as exhibits to Form 

TA-2? What costs, benefits and burdens, if any, would this create for issuers or 

transfer agents? Should the Commission establish a materiality threshold or 
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provide guidance on materiality were it to propose such a rule? Please provide a 

full explanation.

12. Should the Commission amend Forms TA-1 and/or TA-2 beyond any changes 

discussed above? If so, what amendments should the Commission consider in 

making that determination and why? Please provide a full explanation.

13. What costs, benefits, and burdens, if any, would the potential requirements 

discussed above create for issuers or transfer agents?

B. Written Agreements Between Transfer Agents and Issuers

Transfer agency agreements between transfer agents and issuers are mainly governed by 

state contract law.372 It is the Commission staff’s understanding, based on information collected 

during examination of registered transfer agents and review of a number of written agreements 

between transfer agents and issuers, that many transfer agents enter into written contracts with 

their issuers that cover some or all of the following subjects: (1) the services to be provided by 

the transfer agent and performance metrics and standards; (2) the responsibilities of the parties;

(3) the duration of the agreement, including termination fees; (4) the fees and terms of payment; 

(5) the terms that govern termination of the agreement; (6) the disposition of securityholder 

records after the agreement’s termination; (7) the use and protection of data, such as privacy and 

business continuity requirements; and (8) indemnification. 

 

372 At present, no UCC or Commission rule requires that transfer agent service agreements with issuers be set 

down in writing or governs the terms of such agreements. Rule 17Ad-16 requires a registered transfer 

agent to notify an appropriate qualified registered securities depository under certain circumstances, 

including when the transfer agent assumes or ceases transfer agent services for an issuer, but does not 

address the terms of transfer agent service agreements with issuers nor require that they be set forth in 

writing. Exchange Act Rule 17Ad-16, 17 CFR 240.17Ad-16. See also Adopting Release for Rule 17Ad16, supra note 147. 
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However, some transfer agents, often smaller transfer agents that may primarily service 

smaller issuers, may not document their arrangements with issuers in a written agreement or, 

even if they do enter into a written agreement, it may not cover all of the subjects identified 

above. Based on the Commission staff’s experience administering the Commission’s transfer 

agent rules and examination program, it appears that such undocumented or under-documented 

arrangements may be more likely than written agreements to lead to protracted disputes, 

especially with respect to: (1) the duration of the arrangement; (2) the conditions of the 

arrangement’s termination; (3) the disposition of the securityholder records after termination or 

notice of termination; and (4) the fees charged by the transfer agent. Such disputes may interfere 

with the operations of the markets and the protection of investors by disrupting or otherwise 

hindering transfer agent processing, recordkeeping, and safeguarding. For example, it is the 

Commission staff’s understanding that some transfer agents, after having been terminated by the 

issuer, have substantially delayed the handing over of securityholder records to successor 

transfer agents by demanding that the issuer pay a substantial “termination” fee before the 

transfer agent would agree to hand over the securityholder records it had been maintaining, even 

though the issuer claimed there was no written agreement in place or it had otherwise not agreed 

to such a fee.373 In such cases, the issuer may be unable to retain a new transfer agent if the old 

transfer agent will not make the records available to the new transfer agent. The inability to 

retain a new transfer agent could lead to inaccuracies in the master securityholder file and other 

 

373 It is the Commission staff’s understanding that typical termination fees may range from about $1,000 to 

$5,000, though disputes like those described herein may involve a transfer agent’s demand for fees as high 

as $30,000. 
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records or impede trading in the issuer’s securities. Commission staff is also aware of instances 

in which a termination dispute between an issuer and a transfer agent has resulted in two transfer 

agents each maintaining separate records, which could be inconsistent with each other. 

The Commission believes that the existence of a written agreement that describes the 

ongoing relationship under which a transfer agent and an issuer will operate, including the terms 

under which the agreement between them may be terminated, could help to avoid such disputes, 

including disputes over agreed-upon fees, and could help ensure the timely and appropriate 

turnover of an issuer’s shareholder records upon the termination of the written agreements. If the 

relationship between an issuer and a transfer agent is terminated and the issuer engages a new 

transfer agent, it is essential to the issuer, its securityholders, and the market participants who 

may seek to trade the issuer’s securities, that the issuer’s records are promptly delivered to the 

new transfer agent to provide an orderly continuity of services. 

Among the issuer’s records and related documents typically in the possession of its 

transfer agent are: (1) the master securityholder file with the names and addresses of current 

securityholders and the amount of securities owned by each holder;374 (2) the control book 

showing the total units outstanding of each securities issue;375 (3) the logs showing items 

transferred and processed for each issue; (4) the records of each issue’s distributions (e.g., 

interest and dividends) to securityholders; (5) an inventory of blank (unissued) securities 

 

374 See Exchange Act Rule 17Ad-9(b), 17 CFR 240.17Ad-9(b).

375 See Exchange Act Rule 17Ad-9(d), 17 CFR 240.17Ad-9(d) (defining “control book”).
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certificates for each issue; and (6) the records of cancelled securities certificates for each issue.376 

Such records are critical to issuers’ routine operations as a stock corporation and to ensuring that 

investors’ rights are protected. Without these records it would be challenging to: (1) establish 

the identities of its own securityholders or the number of units of securities each investor holds; 

(2) determine whether the number of its shares outstanding is within the bounds of its corporate 

charter or whether there has been an overissuance; (3) distribute interest and dividend payments 

to its investors; or (4) provide to investors periodic reports and proxy statements. 

The Commission therefore intends to propose amendments to the transfer agent rules to 

require that any arrangement for transfer agent services between a registered transfer agent and 

an issuer be set forth in a written agreement that covers certain basic topics, such as the transfer 

agent services to be provided, the terms of payment and fees to be imposed, particularly any 

termination fees, and requirements for the turnover of transfer agent records to the successor 

transfer agent. The Commission further intends to propose new or amended rules requiring 

transfer agents to pass through certain records to newly appointed or successor transfer agents in 

a prompt, complete, and uniform manner. 

The Commission seeks comment on the following:

14. Should the Commission require that any arrangement for transfer agent services 

between a registered transfer agent and an issuer be set forth in a written 

agreement? Why or why not? What are the alternative means of achieving 

similar objectives, and are they as effective or efficient? If the Commission were 

to require a written agreement, should it cover certain topics? If so, what topics? 

For any such provisions or topics, are there asymmetries in information or other 

 

376 See Exchange Act Rule 17Ad-19, 17 CFR 240.17Ad-19 (cancellation of certificates); Exchange Act Rules 

17Ad-6(c), 7(d), 17 C.F.R. 240.17Ad-6(c), 7(d) (requiring that such cancelled certificates “be maintained 

for a period of not less than six years.”).
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areas between transfer agents and issuers that the Commission should consider in 

connection with such contractual provisions? For what types of transfer agents, 

or in what types of such relationships, do these asymmetries most frequently arise, 

and where are they most acute? Please provide a full explanation and supporting 

evidence. 

15. How are fees set out in transfer agent agreements today? Do issuers find it 

difficult to fully understand the fee structures offered by transfer agents, and how 

do those fee structures work in practice? Should the Commission require that all 

fee arrangements between an issuer and a transfer agent be set forth and specified 

in a written agreement? Why or why not? Should the Commission require that 

transfer agents disclose their fee arrangements in their filings with the 

Commission? If so, should transfer agents be required to utilize a standardized 

framework or terminology when disclosing their fee structures? Should the 

Commission exempt fees which may be negotiated on a case-by-case basis, such 

as corporate action fees? Why or why not? Would requiring disclosure of fees 

affect competition, or the form of competition, among transfer agents or between 

transfer agents and other entities? Please provide a full explanation and 

supporting evidence. 

16. Currently, transfer agents are not required by rule to pass through specified

records to successor transfer agents. Are issuers or transfer agents aware of 

instances where records have not been passed from one agent to the next, or 

agents have not done so in a prompt manner? Are commenters aware of disputes 

between transfer agents and their issuer clients or successor transfer agents with 

respect to the transfer of records to a successor transfer agent? How was the 

situation resolved? Have transfer agents demanded previously undisclosed 

termination fees, or fees inconsistent with what those parties previously agreed to, 

in exchange for turning over records to a successor? Would the anticipated

proposed rules described above help avoid or resolve any disputes between 

transfer agents and issuers or successor-transfer agents with respect to the transfer 

of records? Please provide a full explanation and supporting evidence. 

17. What costs, benefits, and burdens, if any, would a written agreement create for 

issuers or transfer agents? 

C. Safeguarding Funds and Securities

Because transfer agents already facilitate securities transfers and maintain securityholder 

records, approximately one-third of them are engaged by issuers to provide administrative, 
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recordkeeping, and processing services related to the distribution of cash and stock dividends, 

bond principal and interest, mutual fund redemptions, and other payments to securityholders.377 

These services, which are generally referred to in this release as “paying agent” services,378 often 

require the transfer agent to receive and accept funds or securities from issuers or securityholders 

and hold them for periods generally ranging from less than one day to 30 days before distributing 

the funds or securities to the intended recipients.379 Transfer agents’ activities with respect to 

paying agent services are significant. In 2014, transfer agents distributed over $2.4 trillion in 

securityholder dividends, bond principal and interest, and mutual fund redemption payments.380 

Additionally, the Commission’s staff understands that transfer agents may hold residual 

funds from thousands to millions of dollars and securities for long periods of time ranging from 

over a month to several years, before distributing the funds or securities either to the intended 

recipients or escheating the funds or securities to a state or territory.381 Residual funds or 

 

377 This data is based on transfer agent annual reports filed with the Commission on Form TA-2 on or before 

March 31, 2015, which are publicly available once filed. See generally, Exchange Act Rule 17Ac2-2(a), 17 

CFR 240.17Ac2-2(a); SEC Form TA-2, 17 CFR 249b.102.

378 Entities other than transfer agents may also provide paying agent services. For example, recently amended 

Rule 17Ad-17(c)(2) defines “paying agent” to 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 holders of the security.” 17 CFR 240.17Ad-17(c)(2). See

supra Section IV.A.4 for additional discussion of Rule 17Ad-17.

379 Certain corporate actions may require the transfer agent to hold funds for extended periods of time beyond 

30 days. For example, where a tender offer is extended beyond 30 days, the transfer agent may maintain 

possession or control over investor funds until the offer expires. The Commission notes that when transfer 

agents have custody of funds or securities, they have a duty to safeguard that property. See Exchange Act 

Rule 17Ad-12, 17 CFR 240.17Ad-12.

380 This figure is based on transfer agent annual reports filed with the Commission on Form TA-2 under the 

Exchange Act on or before Mar. 31, 2015, which are publicly available once filed. See generally, 

Exchange Act Rule 17Ac2-2(a), 17 CFR 240.17Ac2-2(a); SEC Form TA-2, 17 CFR 249b.102.

381 As noted above in Section V.C, when a property owner fails to demonstrate ownership of property for a 

specified period of time by, for example, cashing a dividend check, that property will likely be deemed by 

the relevant state to be abandoned and will be escheated to the state’s unclaimed property administrator 
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securities include those which cannot be successfully delivered to the intended recipient because 

the transfer agent has lost contact with the intended recipient (e.g., lost securityholder funds),382

as well as those which are transmitted or delivered, but the intended recipient nonetheless does 

not demonstrate ownership of the property (e.g., unresponsive payee funds, which may 

ultimately be escheated).383 

As demonstrated by the Paperwork Crisis, the financial crisis of 2008, the 2012 flooding 

of the DTCC securities vault in New York during Superstorm Sandy,384 and many other 

incidents, the safe, accurate, and efficient delivery of funds and securities, whether in certificated 

or uncertificated form, is vital to the integrity and smooth functioning of the National C&S 

System. Given their significant role in providing paying agent and custody services for funds 

and securities,385 and the risk of loss from fraud, theft, or other misappropriation,

386 the funds 

 

pursuant to the state’s applicable escheatment laws. See, e.g., Adopting Release for 17Ad-17 

Amendments, supra note 274.

382 See Exchange Act Rule 17Ad-17(b)(2), 17 CFR 240.17Ad-17(b)(2) (defining “lost securityholder”). As 

noted above in Section IV.A.4, the requirement to conduct database searches for lost securityholders has 

been extended to brokers and dealers. See Adopting Release for 17Ad-17 Amendments, supra note 274.

383 See Exchange Act Rule 17Ad-17(c)(3), 17 CFR 240.17ad-17(c)(3) (defining “unresponsive payee”). Rule 

17Ad-17(c)(1) generally requires paying agents to provide within certain time periods written notification 

to each unresponsive payee that the securityholder has been sent a check (or checks) that has not yet been 

negotiated. Exchange Act Rule 17Ad-17(c)(1), 17 CFR 240.17Ad-17(c)(1). 

384 See DTCC 2013 Annual Report (2013), available at http://www.dtcc.com/annuals/2013/index.php 

(discussing DTC vault flood and security certificate recovery process after Superstorm Sandy). 

385 See supra note 380 (data on distributions made in 2014 by registered transfer agents on behalf of issuers).

386 See, e.g., SEC v. Robert G. Pearson and Illinois Stock Transfer Company, Civ. Action No. 1:14-cv-03875 

(N.D. Ill. May 22, 2014); SEC Litigation Release No. 23007 (May 28, 2014) (announcing fraud charges 

against Illinois Stock Transfer Company and its owner, alleging misappropriation of money belonging to 

their corporate clients and the clients' securityholders in order to fund their own payroll and business); In 

the Matter of Securities Transfer Corporation and Kevin Halter, Jr., Exchange Act Release No. 64030 

(Mar. 3, 2011) (settled action) (finding that transfer agent and its president failed to ensure that transfer 

agent had adequate supervisory procedures and a system for applying such procedures to safeguard client 

funds held in its custody or possession from internal employee abuse perpetrated by the transfer agent’s 

former bookkeeper).
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and securities held in a transfer agent’s custody in either physical or electronic form could 

present significant custody or delivery risks to issuers, securityholders, and the financial system 

as a whole. In addition, funds and securities in custody of transfer agents could also be subject to 

risk of loss from recordkeeping errors (e.g., where the transfer agent is unable to reconcile the 

origin and ownership of funds or securities held), attachment (e.g., in the event of a judgment 

against the transfer agent), and insolvency (e.g., securityholder or issuer funds could be 

commingled with transfer agent funds and therefore, in the event of bankruptcy, treated as 

general assets of the transfer agent and not as separately identifiable investor or issuer funds).387 

Further, even routine paying agent activity, such as dividend distribution processing, may 

be complex. For example, after determining record date eligibility, the paying agent (who may 

be a transfer agent) will calculate and balance the cash dividend amount or, in the case of a stock 

dividend, the equivalent number of shares, which the transfer agent will issue, register, and 

deliver, either in certificated or book-entry form. The paying agent may then handle the printing, 

posting, and distribution388 of dividend payments to the issuer’s registered securityholders,389

 

387 As noted in Section I, a transfer agent’s failure to perform its recordkeeping duties can create significant 

risks. These risks may be heightened where a transfer agent maintains the only electronic record of 

ownership of an issuer’s securities, such as when facilitating an issuer’s DRS program whereby the transfer 

agent, not DTC, maintains electronic book-entry custody and records of shares. 

388 Disbursements may be by check, electronic deposit into a securityholder bank account, or reinvestment in 

additional shares of the company through a DRIP or a Direct Stock Purchase Plan (“DSPP”). Additionally, 

some larger transfer agents may provide currency exchange services to international investors, allowing 

them to select the currency in which they want their dividend payments or sale proceeds to be calculated 

and paid. 

389 Where securities are held in street name registered to DTC’s nominee, Cede & Co., rather than issuing 

thousands of individual checks or securities directly to registered securityholders, the paying agent will 

deliver funds (or newly issued securities generated by certain corporate actions) to DTC. DTC then 

electronically credits the accounts of the appropriate banks and brokers, which in turn credit the payments 

and/or securities to the accounts of the beneficial owners. For additional information about DTC’s 
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either directly or through a third-party service provider. The paying agent may also reconcile all 

checks and disbursements from the dividend account, and thereafter may also offer ancillary 

payment services to securityholders, such as: (i) corresponding with securityholders regarding 

uncashed or stale-dated distribution payments or distribution payments declared lost or stolen; 

(ii) placing stops on checks or certificates that are certified to be lost or stolen; (iii) reissuing 

replacement checks and securities where necessary; (iv) providing photocopies of paid checks; 

and (v) preparing and mailing dividend tax reporting forms required by the Internal Revenue 

Service. 

Other distributions, like those arising from lawsuits or settlements, may require special 

attention. For example, to ensure that only investors who held shares between specific dates or 

meet other detailed tests are compensated for a specific settlement, transfer agents who are 

engaged to perform distribution activities must carefully review ownership records to determine 

who is entitled to receive a payment and in what amount. Any processing errors at any point in 

this complex process could present substantial risks for both issuers and securityholders. For 

example, if there is a substantial positive adjustment to the share price following the payment 

date, a transfer agent’s failure to calculate or distribute the correct amounts to securityholders 

could create risk of loss of funds or securities for investors, as well as risk of liability for the 

issuer, transfer agent, and others involved in the processing. A transfer agent’s inadvertent 

failure to reinvest a dividend payment or an erroneous distribution of a cash payment could 

create similar risks. 

 

Corporate Actions Processing Service for distributions, see Corporate Actions Processing, DTCC, 

http://www.dtcc.com/asset-services/corporate-actions-processing.aspx.
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Despite the amounts involved and risks posed, only one of the existing transfer agent 

rules – recently amended Rule 17Ad-17 – specifically refers to and directly addresses certain 

limited conduct of paying agents.390 Other Commission rules indirectly address activity 

implicated by the paying agent role, but do not specifically address the complex administrative, 

recordkeeping, and processing activities associated with transfer agents’ activities as paying 

agents, nor do they provide definitive standards to determine the adequacy of the transfer agent’s 

safeguards or prescribe specific requirements for how transfer agents in such instances should 

protect funds and securities from misappropriation, theft, or other risk of loss. In particular, Rule 

17Ad-12 requires transfer agents to assure that funds and securities in their possession or control 

are “protected, in light of all facts and circumstances, against misuse,” and that all such securities 

“are held in safekeeping and are handled, in light of all facts and circumstances, in a manner 

reasonably free from risk of theft, loss or destruction.”391 Rule 17Ad-13 requires transfer agents 

to file an annual report prepared by an independent accountant concerning the transfer agents’ 

systems of internal accounting control and related procedures for the safeguarding of related 

funds. 

More specificity and a more robust set of standards against which paying agent activities 

can be measured may be necessary to better protect investors, facilitate the prompt and accurate 

clearance and settlement of securities transactions, and keep pace with the evolving roles transfer 

agents occupy in this space. We intend to propose new rules or rule amendments to address 

transfer agents’ expanded role in handling investor funds and securities, as well as the increase in 

 

390 See supra Section IV.A.4 for additional discussion of Rule 17Ad-17.

391 Exchange Act Rule 17Ad-12, 17 CFR 240.17Ad-12. 
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the number and types of transactions currently facilitated by transfer agents. In particular, the 

Commission intends to propose new rules or amend Rule 17Ad-12 to require transfer agents to 

comply with specific minimum best practices requirements related to safeguarding funds and 

securities, such as: (i) maintaining secure vaults; (ii) installing theft and fire alarms; (iii) 

developing specific written procedures for access and control over securityholder accounts and 

information; (iv) enhanced recordkeeping requirements; and (v) specific unclaimed property 

procedures. The Commission also intends to propose a rule requiring transfer agents to 

segregate client funds to ensure that bank accounts are appropriately designated to protect client 

funds from being counted as transfer agent funds in the event of insolvency, and to obtain written 

notification from banks holding the funds that the funds are for the exclusive benefit of the 

customers, not the transfer agent. 

In addition, the Commission intends to propose new rules for transfer agents similar to 

those recently adopted for registered broker-dealers regarding amended annual reporting, 

independent audit, and notification requirements, which are designed to, among other things, 

increase broker-dealers’ focus on compliance and internal controls.392 In light of the activities 

and risks associated with their paying agent activities discussed above, the Commission 

preliminarily believes it would be appropriate to implement similar rules for transfer agents, 

including rules requiring transfer agents to prepare and file annual financial reports consisting of 

a statement of financial condition, a statement of income, a statement of cash flows, and certain 

other financial statements, similar to those discussed above in Section VI.A in connection with 

 

392 For a discussion of the recent amendments to the requirements for broker-dealers, see Broker-Dealer 

Reports, Exchange Act Release No. 70073 (July 30, 2013), 78 FR 51910 (Aug. 21, 2013). 
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new registration and annual reporting requirements. The Commission intends to propose new 

rules to require transfer agents acting as paying agents or custodians to prepare and maintain 

current and detailed policies and procedures reasonably designed to comply with any new or 

amended possession and control requirements for the safeguarding of customer funds and 

securities. In connection with these proposals, the Commission also intends to propose certain 

amendments to Form TA-2 requiring transfer agents to disclose the number and/or dollar value 

of residual and unclaimed funds. Finally, the Commission intends to propose amendments to 

Rule 17Ad-12 to provide specific requirements for the safeguarding of uncertificated securities, 

including appropriate controls and limitations on access to a transfer agent’s electronic records. 

The Commission seeks comment on the following:

18. Would the anticipated proposals described immediately above appropriately 

strengthen practices and procedures involving the safeguarding of funds and 

securities by transfer agents? Are there other areas that the Commission should 

consider? If so, what regulatory or other action to address any areas of weakness 

or risk should the Commission consider? Please provide a full explanation. 

19. Should the Commission require transfer agents to file on a periodic basis 

information disclosing whether and how a transfer agent maintains custody of 

issuer and securityholder funds and securities, similar to the information brokerdealers are required to report quarterly? Why or why not? What benefits, costs,

and burdens would result? Please provide a full explanation. 

20. In addition or as an alternative to the anticipated proposals described above, 

should the Commission provide specific guidelines or requirements for transfer 

agents’ paying agent and custody services? Why or why not? What should those 

guidelines or requirements be? Do commenters believe the lack of such 

guidelines or requirements results in varying practices and standards among 

transfer agents, or specific areas of weakness or risk? Why or why not? Please 

provide a full explanation.

21. What are the current best practices with respect to the safeguarding of funds and 

securities (e.g., segregation of accounts, written procedures, specific internal 

controls, limits on employee access to physical items and records, and to 

computer systems, as well as other access controls)? Do commenters believe that 

Rules 17Ad-12, 17Ad-13, and 17Ad-17 are effective in encouraging those best 

practices? Are there differences in how funds are safeguarded between smaller 
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and larger transfer agent firms? Please provide a full explanation.

22. What are the current best practices with respect to the creation, maintenance, and 

reconciliation (or other use) of financial or other records that might bear upon the 

safety of customer funds and securities? Should the Commission require any such 

best practices, such as: (i) monitoring the financial position of the transfer agent 

by preparing, maintaining, and reconciling financial books and records, including 

a statement of financial condition, a statement of income, a statement of cash 

flows, and certain other financial statements; and (ii) adopting internal written 

procedures or specific internal controls requiring the monthly reconciliation of all 

bank accounts used in a transfer agent’s business, and requiring audits of the 

effectiveness of these internal controls by independent public accountants? Why 

or why not? Please provide a full explanation.

23. Should the Commission require transfer agents to file certain additional reports 

prepared by an independent public accountant on the transfer agent’s compliance 

and internal controls? Why or why not? In connection with any such 

requirement, should the Commission require transfer agents to allow 

representatives of the Commission or other ARA to review the documentation 

associated with certain reports of the transfer agent’s independent public 

accountant and to allow the accountant to discuss with representatives of the 

Commission or ARA the accountant’s findings associated with those reports when 

requested in connection with an examination of the transfer agent? Why or why 

not? Please provide a full explanation. 

24. Do commenters believe that there are different risks associated with transfer 

agents maintaining issuer or securityholder funds at banks that are part of the 

same holding company structure as the transfer agent, as opposed to a wholly 

unaffiliated bank? Why or why not? If there are distinct risks, should the 

Commission act to mitigate those risks, and if so, how? Should the Commission 

prohibit a transfer agent from maintaining issuer and securityholder funds at a 

bank that is affiliated with the transfer agent? If so, how should “affiliated bank” 

be defined? Should transfer agents that are also custodian banks be required to 

maintain a segregated special account or accounts at an unaffiliated bank or other 

approved location? Why or why not? Please provide a full explanation. 

25. If transfer agents were to be required to deposit or transmit issuer and 

securityholder funds into a special bank account, should the Commission also 

limit the amount of funds that could be deposited in special accounts at a bank to 

reasonably safe amounts, whether the bank is affiliated or non-affiliated? Why or 

why not? If so, what amounts should the Commission consider reasonably safe? 

Should such amounts be measured against the capitalization of the transfer agent 

and/or the bank? Why or why not? Please provide a full explanation.

26. What are the current insurance requirements and/or practices among transfer 

agents, and what is the source of those requirements and/or practices? Would 
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different or additional insurance requirements address current paying agent risks, 

such as loss or misuse of funds? Why or why not? If so, what types and amounts 

of insurance would be sufficient to address current paying agent risks? Why? If 

the Commission proposes specific insurance requirements for transfer agents, 

should it also require transfer agents to establish and maintain written policies and 

procedures describing their process for evaluating and procuring insurance (such 

as fidelity, professional indemnity, cybersecurity, errors and omissions and surety 

coverage) and for determining the coverage amounts? Should the transfer agent’s 

annual accountant’s report on internal controls required by Rule 17Ad-13 include 

verification that the transfer agent has fulfilled these requirements? Please 

provide a full explanation. 

27. What are the industry best practices with respect to safeguarding procedures 

specific to residual or unclaimed funds and securities remaining in the transfer 

agent’s possession or control post-payment but prior to the successful distribution 

to securityholders or escheatment to a state or territory?

28. If the Commission were to require transfer agents to disclose information 

pertaining to residual or unclaimed funds, what type of information and level of 

detail should be required, and how frequently should it be required to be reported? 

What would be the cost, burdens or benefits, if any, of such disclosure for issuers 

or transfer agents?

29. Currently, Rule 17Ad-5 only requires a transfer agent who has not handled 

disbursements or dividends for at least three years to respond to inquiries by 

simply indicating the agent is no longer the paying agent. What volume of such 

requests do paying agents typically receive annually? Do paying agents typically 

know who the current agent is? What would be the costs, burdens or benefits if 

paying agents were required to provide such information? Please provide a full 

explanation.

30. What would be the costs, benefits, and burdens, if any, of the proposals described 

above? 

D. Restricted Securities and Compliance With Federal Securities Laws

Transfer agents play a particularly important role in the securities industry with respect to 

the issuance and transfer of restricted securities. Restricted securities cannot be resold legally 

unless there is an effective registration statement for their resale, or there is an available 

exemption from registration for the resale. Typically, these securities bear restrictive legends 

indicating that their sale or transfer may be subject to a restriction or limitation and 
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intermediaries will not effectuate their transfer until restrictive legends are removed. Because 

transfer agents are often the party responsible for affixing, tracking, and removing restrictive 

legends, they play an important role in helping to prevent unregistered securities distributions 

that violate Section 5 of the Securities Act of 1933 (“Securities Act”).

393 The need to prevent 

unregistered securities distributions is particularly acute in the microcap market, where OTC 

issuers may not be subject to certain of the Commission’s disclosure requirements and there is an 

increased potential for fraud and abuse because potential investors have few, if any, resources for 

obtaining meaningful disclosure or conducting independent research on microcap issuers. 

The Commission’s experience in investigating abuses in the microcap market and 

bringing enforcement actions charging violations of the federal securities laws demonstrates how 

the removal of restrictive legends can often be a central element contributing to illegal, 

unregistered distributions of securities. While these actions typically involve misconduct by 

persons other than the transfer agent, the Commission has charged transfer agents as culpable 

participants in a variety of circumstances. Transfer agents may face potential liability for aiding 

and abetting or causing a violation of Section 5 of the Securities Act for an act or omission that 

contributes to or helps effectuate an illegal unregistered distribution.394 In some cases, we have 

brought an action against the transfer agent for violating Section 5 on the theory that the transfer 

 

393 See Securities Act Section 5, 15 U.S.C. 77e. 

394 See, e.g., National Stock Transfer, Inc., A.P. File No. 3-9949, Sec. Act Rel. No. 7924 (Dec. 4, 2000) 

(settled proceeding against transfer agent and an officer of the transfer agent for willfully aiding and 

abetting and causing Section 5 violations by issuing shares in reliance on an issuer’s representation of an S8 transaction that had been purportedly registered with the Commission when no such registration existed); 

Holladay Stock Transfer, Inc., A.P. No. 3-9567, Sec. Act Rel. No. 7519 (Mar. 25, 1998) (settled cease and 

desist proceeding against transfer agent and president for, among other charges, willfully aiding and 

abetting and causing Section 5 violations by an issuer client). 
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agent was a “necessary participant” and “substantial factor” in the unregistered distribution or 

sale.395 Depending on the facts and circumstances, a transfer agent also could incur liability 

pursuant to the anti-fraud provisions of the federal securities laws,396 such as Section 10(b) of the 

Exchange Act,397 Rule 10b-5 thereunder,

398 and Section 17(a) of the Securities Act.399 

Some transfer agents have expressed concern, however, that they perceive a conflict in 

some instances between their obligation to take appropriate steps to forestall an illegal 

distribution, and their obligation under state law to comply with a valid request to issue a 

security or facilitate a transfer, which may require removal of a restrictive legend.400 

Nonetheless, if a transfer would be unlawful under the federal securities laws, the transfer agent 

is not required by state law to comply with a request for transfer.401 We note that the person or 

 

395 See, e.g., Registrar and Transfer Company, A.P., Exchange Act Rel. No. 73189, para. 21 (Sep. 23, 2014)

(settled action against transfer agent and its chief executive officer for, respectively, willfully violating 

Sections 5(a) and 5(c) and causing the transfer agents’ violations); SEC v. CMKM Diamonds, Inc., 2011 

WL 3047476 (granting summary judgment for violations of Section 5 against transfer agent and its 

principal as necessary participants and substantial factors in unlawful distribution), rev’d, 729 F.3d 1248, 

1259 (9th Cir. 2013) (holding that “undisputed facts do not establish that [transfer agent and its principal] 

were substantial participants . . . as a matter of law”); SEC v. CIBC Mellon Trust Co., Civ. Action No. 

1:05-cv-0333 (PLF) (D.D.C. Feb. 16, 2005) (settled action charging a transfer agent with primary 

violations of Section 5 in addition to primary and aiding and abetting liability in a 10b-5 fraud to promote, 

distribute, and sell the stock of issuer Pay Pop, Inc. where Pay Pop officers paid a senior manager at the 

transfer agent bribes in the form of Pay Pop shares to obtain transfer agent services). 

396 See, e.g., id.

397 Exchange Act Section 10, 15 U.S.C. 78j.

398 Exchange Act Rule 10b-5, 17 CFR 240.10b-5.

399 Securities Act Section 17(a), 15 U.S.C. 77q(a).

400 See, e.g., Robert Feyder, Transfer Agents Beware: A Request to Remove a Restrictive Legend May be the 

Equivalent of a Request to Register Transfer, The Securities Transfer Association, Inc. Newsletter, Issue 2 

(2002). 

401 See Campbell v. Liberty Transfer Co., 2006 U.S. Dist. LEXIS 91568 (E.D.N.Y. Dec. 19, 2006) (holding 

that transfer agent could not be found liable for requiring that certificate be legended and refusing to honor 

transfer absent attorney opinion letter; federal law precluded the transfer agent from treating the shares as if 

they were freely tradable; to conclude that plaintiff’s request for transfer required action by the transfer 

agent would be inconsistent with the Supremacy Clause); Catizone v. Memry Corp., 897 F. Supp. 732 
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entity requesting a transfer of restricted securities based on an exemption from the registration 

requirements of the Securities Act bears the burden of proving entitlement to that exemption.402 

Further, it appears that issuers (and their transfer agents) may reasonably withhold consent to 

register a transfer until they can determine that the request “is in fact rightful” under Section 8-

401(a)(7) of the UCC.403 Because the relevant determinations can involve the assessment of 

legal issues that are fact-dependent,404 transfer agents typically may seek to rely on 

representations or opinions provided by the issuer or securityholder and their counsels, usually in 

the form of an “attorney opinion letter,” to determine whether an exemption from registration 

under Section 5 of the Securities Act is applicable. As our enforcement experience 

demonstrates, however, this process is also susceptible to abuse, as many illegal distributions are 

facilitated by the improper issuance of such opinion letters.405

 

(S.D.N.Y. 1995) (holding that since the transfer violated the Securities Act, it cannot be considered rightful 

under Section 8-401 of the U.C.C. and transfer agent was under no duty to register the transfer); Charter 

Oak Bank & Trust Co. v. Registrar & Transfer Co., 358 A.2d 505 (N.J. Sup. Ct. 1976) (holding that a 

transfer agent cannot be required by state law to transfer stock in violation of the Securities Act, therefore, 

when a transfer agent has reasonable cause to believe that a transfer will be in violation of the Securities 

Act, it has the right to refuse to make the transfer until it has received an explanation or showing that the 

proposed transfer would not violate the Securities Act). 

402 See, e.g., SEC v. Ralston Purina Co., 346 U.S. 119 (1953); Gilligan, Will & Co. v. SEC, 257 F.2d 461 (2d 

Cir. 1959); SEC v. Culpepper, 270 F.2d 241 (2d Cir. 1959); Edwards v. United States, 312 U.S. 473 

(1941). 

403 If any of the preconditions enumerated in UCC Section 8-401 do not exist, such as where a transfer is 

wrongful, the issuer is under no duty to register the transfer. See U.C.C. 8-401, cmt. 1. 

404 These issues can include determining a securityholder’s affiliate status with the issuer or identifying the 

holding period during which an individual held restricted securities. See Securities Act Rule 144(b)(2), 17 

CFR 230.144(b)(2) (providing for different conditions for use of the rule on affiliates than on nonaffiliates); Securities Act Rule 144(d)(1), 17 CFR 230.144(d)(1) (providing for a holding period for 

restricted securities).

405 See, e.g., SEC v. Gendarme Capital Corp., 2012 WL 346457 (E.D. Cal. Jan. 31, 2012) (denying 

defendant’s motion to dismiss Section 5 claims, where Commission’s complaint alleged that attorney 

issued more than 50 opinion letters to transfer agents containing false statements); SEC v. Czarnik, 2010 

WL 4860678 (S.D.N.Y. Nov. 29, 2010) (denying defendant’s motion to dismiss Section 5 charges where 
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More specificity around transfer agents’ responsibilities with respect to illegal 

distributions may help to better protect investors, facilitate the prompt and accurate clearance and 

settlement of securities transactions, and combat fraud and manipulation in the microcap market. 

We therefore intend to propose new rules or rule amendments to address transfer agents’ role in 

facilitating transfers of securities that result in illegal distributions of securities. In particular, the 

Commission intends to propose a new rule prohibiting any registered transfer agent or any of its 

officers, directors, or employees from directly or indirectly taking any action to facilitate a 

transfer of securities if such person knows or has reason to know that an illegal distribution of 

securities would occur in connection with such transfer. 

We also intend to propose a new rule prohibiting any registered transfer agent or any of 

its officers, directors, or employees from making any materially false statements or omissions or 

engaging in any other fraudulent activity in connection with the transfer agent’s performance of 

its duties and obligations under the Exchange Act and the rules promulgated thereunder, 

including any new or amended rules the Commission may promulgate in the future, such as those 

dealing with transfer agents’ safeguarding, paying agent, and other activities discussed above in 

Section VI.C and throughout this release. We also intend to propose a new rule requiring each 

registered transfer agent to adopt policies and procedures reasonably designed to achieve 

compliance with applicable securities laws and applicable rules and regulations thereunder, and 

to designate and specifically identify to the Commission on Form TA-1 one or more principals to 

serve as chief compliance officer. 

 

complaint alleged, among other things, that attorney drafted false opinion letters provided to transfer 

agents).
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The Commission seeks comment on the following:

31. Is there a need for Commission rules clarifying transfer agent liability for 

participating in or facilitating an unlawful distribution of securities in violation of 

Section 5 of the Securities Act? Why or why not? If so, what rules should be 

considered?

32. Currently, there are no specific Commission rules regarding the placement or 

removal of restrictive legends by transfer agents. Is there a need for Commission 

rules governing the role of transfer agents in placing or removing restrictive 

legends? Why or why not? If so, what are the specific issues that should be 

addressed by Commission rulemaking? 

33. Should the Commission provide specific guidelines and requirements for 

registered transfer agents in connection with removing a restrictive legend and in 

connection with issuing any security without a restrictive legend, such as: (1) 

obtaining an attorney opinion letter; (2) obtaining approval of the issuer; (3) 

requiring evidence of an applicable registration statement or evidence of an 

exemption; and/or (4) conducting some level of minimum due diligence (with 

respect to the issuer of the securities, the shareholder and/or the attorney 

providing a legal opinion)? Why or why not? Should the Commission also 

consider specific recordkeeping and retention requirements related to the issuance 

of share certificates without restrictive legends? Why or why not? How should 

book-entry securities be addressed? Are there other guidelines or requirements 

the Commission should consider with respect to the issuance of share certificates 

or book-entry securities without restrictive legends?

34. If the Commission were to issue any standards for restrictive legend removal, 

what would be an appropriate level of due diligence? Should any due diligence 

requirements be compatible with current state law governing the issuance and 

transfer of securities? Should the Commission consider specific guidelines and 

requirements for the review of representations that a shareholder is not an affiliate 

of the issuer or is not acting in coordination with other shareholders? Why or 

why not? If so, what guidelines or requirements should be considered? Should 

the Commission consider specific guidelines and requirements regarding transfer 

agents’ obligations to review or determine the ultimate beneficial ownership of 

shares, identification of control persons of the shareholders, and relationship of 

shareholders to the issuer, officers or each other? 

35. Do transfer agents currently possess detailed and accurate information regarding 

the ownership history of the securities they process? For example, do transfer 

agents know whether the securities they process were ever owned by a control 

person or other affiliate of the issuer, and for how long? If so, how do they know 

this? If transfer agents possess such information, do they provide it to other 

market intermediaries, such as broker-dealers and securities depositories? If not, 

should transfer agents be required to do so? Has the inability of broker-dealers 
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and other market intermediaries to obtain detailed and accurate securities 

ownership information facilitated the unlawful distribution of securities? Has it 

impaired secondary market liquidity, such as by making other market 

intermediaries unwilling or less willing to handle certain securities? If so, how 

can the Commission address these issues?

36. Should transfer agents be permitted to rely on the written legal opinion of an 

attorney under certain circumstances? If so, what should those circumstances be? 

For example, should there be requirements regarding the attorney’s qualifications 

or the attorney’s relation to the issuer or investor? Is it appropriate for transfer 

agents to rely on attorney opinion letters to the extent the letters are based on 

representations of the issuer or third parties without the attorney’s review of 

relevant documentation or independent verification of the representations?

37. Should the Commission obligate transfer agents to: (i) confirm the existence and 

legitimacy of an issuer’s business (for example by reviewing leases for corporate 

offices, etc.); (ii) obtain names and signature specimens for persons the issuer 

authorizes to give issuance or cancellation instructions, together with any 

documents establishing such authorization; (iii) conduct credit and criminal 

background checks for issuers’ officers and directors and shareholders requesting 

legend removal; (iv) obtain and confirm identifying information for shareholders 

requesting legend removal (e.g., legal name, address, citizenship); and/or (v) 

obtain and review publicly-available news articles or information on issuers or 

principals? Why or why not? 

38. Should the Commission enumerate a non-exhaustive list of “red flags” or other 

specific factors which would trigger a duty of inquiry by the transfer agent? Why 

or why not? If so, which “red flags” should be included?

39. Are there types of securities or categories of transactions commenters believe 

should require a heightened level of scrutiny or review by transfer agents before 

removing a restrictive legend or processing a transfer? If so, which ones and 

why? What should any such heightened scrutiny or review entail? For example, 

should the Commission require additional diligence requirements for securities 

offered by issuers that are not required to file financials with the Commission? 

Why or why not?

40. The Commission is aware that industry participants have suggested that the 

Commission provide a safe harbor for transfer agents from direct liability or 

secondary liability (e.g. aiding and abetting) in connection with an unregistered 

distribution of securities if the transfer agent follows the procedures set out in the 
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safe harbor concerning legend removal.406 Should the Commission impose such a 

safe harbor? Why or why not? If so, what should be the specific conditions of 

the safe harbor? 

41. Other than ensuring that the removal of restrictive legends is appropriate and not a 

means to sidestepping registration requirements, what requirements or 

prohibitions, if any, should the Commission consider as additional protections 

against the unlawful distribution of unregistered securities? For example, should 

transfer agents be required to deliver securities certificates directly to registered 

securityholders or be prohibited from delivering securities certificates to third 

parties that are not registered as owners of the certificates on the transfer agents’ 

books? Why or why not?

42. In what form (e.g. certificate form or book-entry form) are restricted securities 

held and issued today? Please provide specific data and examples and, where 

available, breakdowns by asset class. To what extent, if any, do holders of 

restricted securities own those securities in street name today? To the extent 

restricted securities are held in book-entry form, what practices are used in the 

marketplace today with respect to sending securityholders account statements 

generally and, specifically, sending account statements bearing restrictive 

legends? Are any special issues created by intermediation, such as by brokerdealers, of any restricted securities held in street name? Should the Commission 

consider rules governing the display of legends on account statements of 

shareholders who hold restricted securities in book-entry form? Are there are any 

technological or regulatory barriers to the application of restrictive legends to 

securities held in DRS form? Should the Commission regulate transfer agent 

processing of securities that are held in DRS form? 

43. The Commission’s staff understands that transfer agents may receive 

compensation in-kind in the form of securities of the issuer that hired the agent to 

remove restrictive legends. Does this create additional or different risks than if 

the transfer agent were paid in cash? If so, should the Commission limit transfer 

agents’ acceptance of securities as payment for services related to penny-stock 

securities or small issuers, or acquiring shares of the issuers they are servicing 

through other means, such as gift or purchase? Why or why not? 

44. What costs, benefits, and burdens, if any, would the potential requirements 

discussed above create for issuers or transfer agents?

 

406 See Rhodes, supra note 18, at § 6:12 (“Attempts are now being made to persuade the SEC to adopt a 

procedure and a form which, when presented to a transfer agent, would free the transfer agent from liability 

in making the transfer in reliance on the form.”).
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45. Should the Commission require transfer agents to maintain, implement, and 

enforce written compliance and/or supervisory policies and procedures, similar to 

those required of broker-dealers? Why or why not? If so, what policies and 

procedures should be required? Should the Commission require transfer agents to 

disseminate written policies and procedures to all employees of the transfer agent 

on an annual or semi-annual basis? Why or why not? Please explain.

46. Should the Commission adopt rules requiring registered transfer agents to 

designate and identify a chief compliance officer? Why or why not? If so, should 

the Commission adopt rules governing the reporting lines and relationships of the 

chief compliance officer? Should the chief compliance officer be required to file 

an annual compliance report with the Commission? Why or why not? If so, what 

information should be included in the annual compliance report? 

47. Should the Commission require transfer agents to undertake security checks or 

confirm regulatory and employment history for employees, certain third-party 

service providers, and associated persons, and to require certain employees of 

registered transfer agents to register with the Commission? Why or why not? 

What would be the costs, benefits, and burdens associated with such a 

requirement? What challenges does the trend toward the outsourcing and 

offshoring of certain aspects of transfer agents’ functions pose for ensuring 

compliance with such a requirement? Please provide a full explanation. 

48. Should the Commission require transfer agents to obtain certain information 

concerning their issuer clients, clients’ securityholders and their accounts, and 

securities transactions? Why or why not? Please explain and provide supporting 

evidence where applicable. Should transfer agents be required to perform a form 

of due diligence on their clients and the transactions they are asked to facilitate, 

similar to the know-your-customer requirements applicable to broker-dealers? 

Should transfer agents be required to obtain a list of all affiliates of their issuer 

clients—including current and former control persons, promoters, and 

employees—and to take special precautionary steps whenever they are asked to 

process transactions for these affiliates?

49. Should the Commission require transfer agents to maintain originals of all 

communications received and copies of all communications sent (including both 

paper and electronic communications) to or from the transfer agent related to its 

business? Why or why not? Please explain.

E. Cybersecurity, Information Technology, and Related Issues

Cybersecurity risk is a specific type of operational risk and includes risks related to the

security of data stored on computers, networks, and similar systems, and technology-related 

disruptions of operational capacity. Given the increased use of and reliance on computers, 
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networks, and similar systems throughout society, cybersecurity threats are omnipresent today. 

They come from many sources and present a significant risk to a wide range of American 

interests, including critical governmental and commercial infrastructures, the national securities 

markets, and financial institutions and other entities that are involved in the National C&S 

System. In 2012, a single group targeted and attacked more than a dozen financial institutions 

with a sustained Distributed Denial of Service attack on those institutions’ public websites.407 

That same year, 89% of global securities exchanges identified cyber-crime as a potential 

systemic risk and 53% reported experiencing a cyber-attack in the previous year.408 

Cybersecurity risks faced by the capital markets and Commission-regulated entities are of 

particular concern to the Commission. Given the highly-dependent, interconnected nature of the 

U.S. capital markets and financial infrastructure, including the National C&S System, as well as 

the prevalence of electronic book-entry securities holdings in that system, the Commission has a 

significant interest in addressing the substantial risks of market disruptions and investor harm 

posed by cybersecurity issues. 

Transfer agents are subject to many of the same risks of data system breach or failure that 

other market participants face. With advances in technology and the enormous expansion of 

book-entry ownership of securities, transfer agents today rely more heavily than ever on 

technology and automation for their core recordkeeping, processing, and transfer services, 

 

407 FSOC Annual Report 2013, sec. 7.2, p. 136. The attacks began in September and “were targeted, 

persistent, and recurring.” 

408 See Rohini Tendulkar, Cyber-crime, securities markets and systemic risk, Joint Staff Working Paper of the 

IOSCO Research Department and World Federation of Exchanges (July 16, 2013), available at 

http://www.iosco.org/research/pdf/swp/Cyber-Crime-Securities-Markets-and-Systemic-Risk.pdf. Forty-six 

securities exchanges responded to the survey.
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especially the use of computers and networks to store, access, and manipulate data, records, and 

other information. As a result, modern transfer agents are vulnerable to a variety of software, 

hardware, and information security risks which could threaten the ownership interest of 

securityholders or disrupt trading not only among registered securityholders but, because of 

transfer agents’ electronic linkages to DTC, also among street name owners. For example, a 

software or hardware glitch, technological failure, or processing error by a transfer agent could 

result in the corruption or loss of securityholder information, erroneous securities transfers, or 

the release of confidential securityholder information to unauthorized individuals. A concerted 

cyber-attack or other breach could have the same consequences, or result in the theft of securities 

and other crimes.409 

Cybersecurity issues have been analyzed and discussed in detail over the last several 

years in a variety of fora.410 For example, the Commission has adopted a number of rules in 

recent years to address cybersecurity and related issues, although most of them either do not 

apply to registered transfer agents or do not address transfer agents’ specific activities. In 2015,

the Commission adopted Regulation SDR (“Reg SDR”), which addresses registration 

requirements, duties, and core principles for security-based swap data repositories (“SDRs”) and 

 

409 See generally, SEC Cybersecurity Roundtable transcript (Mar. 26, 2014), available at

https://www.sec.gov/spotlight/cybersecurity-roundtable/cybersecurity-roundtable-transcript.txt. 

410 See, e.g., id.; see also OCIE Risk Alert, “OCIE’s 2015 Cybersecurity Exam Initiative,” Vol IV, Issue 8 

(Sept. 15, 2015); OCIE Risk Alert, “Cybersecurity Examination Sweep Summary,” Vol IV, Issue 4 (Feb. 3, 

2015); Luis A. Aguilar, Comm’r, SEC, Speech at “Cyber Risks and the Boardroom” Conference of the 

New York Stock Exchange (June 10, 2014), available at

http://www.sec.gov/News/Speech/Detail/Speech/1370542057946 (Boards of Directors, Corporate 

Governance and Cyber-Risks: Sharpening the Focus); Luis A. Aguilar, Comm’r, SEC, Speech at SINET 

Innovation Summit (June 25, 2015), available at http://www.sec.gov/news/speech/threefold-cordchallenge-of-cyber-crime.html) (A Threefold Cord — Working Together to Meet the Pervasive Challenge 

of Cyber-Crime); Michael S. Piwowar, Comm’r, Interview at The World Today (Sept. 17, 2014), available 

at http://www.abc.net.au/worldtoday/content/2014/s4150439.htm (last visited Dec. 11, 2015).
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includes a requirement that every SDR adopt written policies and procedures reasonably 

designed to ensure that its core systems provide “adequate levels of capacity, integrity, 

resiliency, availability, and security.”411 However, unless it qualifies as an SDR, a registered 

transfer agent would not otherwise be subject to these requirements. 

In 2014, the Commission adopted Regulation Systems, Compliance and Integrity (“Reg 

SCI”), which requires entities covered by the rule to test their automated systems for 

vulnerabilities, test their business continuity and disaster recovery plans, notify the Commission 

of cyber intrusions, and recover their clearing and trading operations within specified time 

frames.412 While Reg SCI covers registered clearing agencies and other entities, it does not 

apply to transfer agents.413

To address cybersecurity risk issues faced by financial institutions (as defined in the Fair 

Credit Reporting Act) that are registered with the Commission, in 2013 the Commission adopted 

Regulation S-ID, which requires these entities to adopt and implement identity theft programs.

414 

 

411 Exchange Act Rule 13n-6, 17 CFR 240.13n-6. Security-Based Swap Data Repository Registration, Duties, 

and Core Principles, Exchange Act Release No. 74246 (Feb. 11, 2011), 80 FR 14437 (Mar. 19, 2015).

412 See Regulation Systems Compliance and Integrity, Exchange Act Release No. 73639 (Nov. 19, 2014), 79 

FR 72252 (Dec. 5, 2014).

413 Id. at 439-40 (discussing commenters views on whether or not transfer agents and other types of entities 

should be subject to Reg SCI and noting “should the Commission decide to propose to apply the 

requirements of Regulation SCI to these entities, the Commission would issue a separate release discussing 

such a proposal and would take these comments into account.”). See also comment letters in response to 

Regulation Systems Compliance and Integrity (Proposing Release), Exchange Act Release No. 69077 

(Mar. 8, 2013): The Securities Transfer Association, Inc. at 2 (Apr. 3, 2013) (commenting that transfer 

agents should not be subject to Reg SCI because they were not part of the Automation Review Policy (ARP 

Program) of the Commission existing prior to the proposal of Reg SCI and only large transfer agents have 

direct connectivity to entities proposed to be covered by Reg SCI); The Investment Company Institute at 3 

(July 12, 2013) (transfer agents should not be subject to SCI); Fidelity Investments at 4 (July 8, 2013) 

(transfer agents should not be subject to SCI because they do not engage in real-time trading and they were 

not included in ARP Program).

414 See 17 CFR 248.201. 
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Unless it meets the definition of a financial institution as defined in the Fair Credit Reporting 

Act, a registered transfer agent would not otherwise be required to comply with Regulation SID.415 

Finally, Regulation S-P was adopted in 2000 and requires certain Commission-registered 

entities to adopt measures to protect sensitive consumer financial information.416 Although 

Regulation S-P primarily covers registered brokers, dealers, investment companies, and 

investment advisers, it also covers transfer agents in a limited way.417 In addition, Commission 

staff has published guidance and other documents addressing cybersecurity risks faced by 

specific types of Commission registrants, such as corporate issuers, broker-dealers, investment 

advisers, and investment companies.418 

 

415 See 17 CFR 248.201(a)(1); 15 U.S.C. 1681 (defining “financial institution” to include certain banks, credit 

unions, and “any other person that, directly or indirectly, holds a transaction account (as defined in Section 

19(b) of the Federal Reserve Act) belonging to a consumer.”); see also Identity Theft Red Flags Rules, 

Exchange Act Release No. 69359, 69 n.182 (Apr. 10, 2013), 78 FR 23637 (Apr. 19, 2013) (“SEC staff 

expects that other SEC-regulated entities described in the scope section of Regulation S-ID, such 

as...transfer agents...may be less likely to be financial institutions or creditors as defined in the rules, and 

therefore we do not include these entities in our [cost/benefit] estimates.”). 

416 See Final Rule: Privacy of Consumer Financial Information (Regulation S-P), Exchange Act Release No. 

42974 (June 22, 2000), 65 FR 40334 (June 29, 2000); Disposal of Consumer Report Information, Exchange 

Act Release No. 50781 (Dec. 2, 2004), 69 FR 71322 (Dec. 8, 2004) (amending rule to require policies and 

procedures be written).

417 See 17 CFR 248.30(b)(1)(v) (“Every... transfer agent registered with the Commission, that maintains or 

otherwise possesses consumer report information for a business purpose must properly dispose of the 

information by taking reasonable measures to protect against unauthorized access to or use of the 

information in connection with its disposal.”); see also Final Rule: Privacy of Consumer Financial 

Information (Regulation S-P), Exchange Act Release No. 42974 (June 22, 2000), 65 FR 40334 (June 29, 

2000). 

418 See, e.g., Disclosure Guidance: Topic No. 2, Cybersecurity of the Division of Corporation Finance of the 

Commission (Oct. 13, 2011), available at https://www.sec.gov/divisions/corpfin/guidance/cfguidancetopic2.htm; OCIE Cybersecurity Initiative, National Exam Program Risk Alert Volume IV, Issue 2 (Apr. 

15, 2014), available at http://www.sec.gov/ocie/announcement/Cybersecurity-Risk-Alert--Appendix---

4.15.14.pdf; Cybersecurity Examination Sweep Summary, National Exam Program Risk Alert Volume IV, 

Issue 4 (Feb. 3, 2015), available at https://www.sec.gov/about/offices/ocie/cybersecurity-examination-
Page 140 of 208

Further, as discussed above, the Commission’s efforts to address transfer agents’ 

safeguarding obligations, including the adoption and application of Rule 17Ad-12,419 have 

focused primarily on funds and securities rather than information systems or cybersecurity. Rule 

17Ad-12 requires transfer agents to exercise reasonable discretion in adopting safeguards 

appropriate for their own operations and risks, and a transfer agent can adopt the safeguards and 

procedures that are most suitable and cost-effective in light of its potential exposure to risk since 

the reasonableness of safeguards and procedures are tested “in light of all facts and 

circumstances.”420 The existing rule, however, prescribes no specific requirements for 

safeguarding additional items of potential value in a transfer agent’s possession which potentially 

could be used to gain access to funds or securities, such as securityholder and account 

information and data in either physical or electronic form. Based on its experience administering 

the Commission’s transfer agent examination program, the Commission staff is aware that some 

transfer agents have identified risks related to information and data directly or tangentially 

related to funds and securities used in their operations, such as securityholder and account 

information stored on systems and in records, and as a result, have developed policies, 

procedures, controls, or best practices to mitigate risk. However, the Commission is concerned 

that widely varying safeguarding procedures and controls among transfer agents could create 

uncertainty and risk in the market. The Commission is further concerned that insufficient 

safeguarding of information and data, such as securityholder personal and account information 

 

sweep-summary.pdf; Cybersecurity Guidance, Division of Investment Management Guidance Update No. 

2015-02 (Apr. 2015), available at http://www.sec.gov/investment/im-guidance-2015-02.pdf. 

419 Exchange Act Rule 17Ad-12, 17 CFR § 240.17Ad-12.

420 See id.
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stored in computer systems and in records, could lead to the loss of information, theft of 

securities or funds, fraudulent securities transfers, or the misappropriation or release of private 

securityholder information to unauthorized individuals.

In light of the foregoing, the Commission intends to propose certain amendments to the 

transfer agent rules to address how technology in general and cybersecurity risks in particular 

affect transfer agents and their activities, and how transfer agents’ technology and information 

systems, including securityholders’ data and personal information, may be related to their 

safeguarding activities. In particular, the Commission intends to propose new or amended rules 

requiring registered transfer agents to, among other things: (i) create and maintain a written 

business continuity plan, tailored to the size and activities of the transfer agent, identifying 

procedures relating to an emergency or significant business disruption, including provisions such 

as data back-up and recovery protocols; (ii) create and maintain basic procedures and guidelines 

governing the transfer agent’s use of information technology, including methods of safeguarding 

securityholders’ data and personally identifiable information; and (iii) create and maintain 

appropriate procedures and guidelines related to a transfer agent’s operational capacity, such as 

IT governance and management, capacity planning, computer operations, development and 

acquisition of software and hardware, and information security. 

The Commission seeks comment on the following:

Safeguarding of Securityholder Information and Data

50. How do commentators understand transfer agents’ safeguarding obligations as 

applied to uncertificated securities? Please be specific.

51. How have transfer agents’ data gathering and retention practices evolved in recent 

years? Do transfer agents collect more or different types of information than in 

the past? What new risks, if any, have arisen as a result of these changes? Are 

there some types of information collected by transfer agents that are more 

valuable to cyber-attackers than others, or that could cause more harm to investors 
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or the markets if disclosed? If so, please specify. Do transfer agents currently 

have special protocols to protect their most sensitive information? If not, should 

the Commission require them to do so?

52. Have transfer agents experienced internal or external access breaches, internal or 

external fraud or abuse, or other issues associated with creating, accessing, 

controlling, altering, or securely storing issuer or investor information or data, 

including securityholders’ private account information and other private personal 

information, whether electronic or otherwise? If so, please describe the nature, 

extent, and resolution of such problems.

53. What are the most significant risks or threats with respect to such information and 

data and what challenges do transfer agents face when attempting to assure that it 

is created, accessed, altered, controlled, and securely stored and retained in a 

manner reasonably free from identified risks? What policies, procedures, or 

controls may be employed to mitigate these risks or threats and address these 

challenges? What is the evidence on the beneficial impact of these practices and 

does it vary across transfer agents? How and why?

54. Have transfer agents identified risks related to information and data directly or 

tangentially related to funds and securities used in their operations, such as 

securityholder and account information stored on systems and in records, 

electronic or otherwise? Please describe the nature and scope of any such 

identified risks, as well as any challenges transfer agents face when attempting to 

mitigate them.

55. Do commenters believe that insufficient safeguarding of information and data, 

such as securityholder personal and account information stored in computer 

systems and in records, could lead to the loss of information, theft of securities or 

funds, fraudulent securities transfers, or the misappropriation or release of private 

securityholder information to unauthorized individuals? Why or why not? Are 

commenters aware of any such occurrences or incidents resulting from 

insufficient safeguarding of information? If so, please describe the nature, extent, 

and resolution thereof, including any steps perceived as necessary to be taken to 

prevent a reoccurrence.

56. What are the current industry best practices for protecting issuer or investor 

information or data in physical or printable records? What minimum standards, if 

any, should the Commission require for the safeguarding of such information or 

data?

57. To ensure that data, records, and other types of information stored on computers, 

networks, and similar systems used by various participants in the National C&S 

System are safeguarded in a manner that protects investors and promotes the 

prompt and accurate clearance and settlement of transactions in securities, should 

Commission requirements apply to certain types of data, records, or other 
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information, rather than to a particular type of entity? For example, should the 

Commission impose specific safeguarding, recordkeeping, or other requirements 

on registered transfer agents and other entities registered or required to be

registered with the Commission that possess or control securityholder and account 

information (electronic or otherwise)? Why or why not? What would be the 

costs, benefits, and burdens associated with such an approach? Please provide 

empirical data if available.

Operational Risk, Cybersecurity, and Other Technology-Related Issues

58. Should the Commission impose specific cybersecurity standards for transfer 

agents? If so, what should they be, and what standard would be appropriate? 

Should these standards vary depending on the size of the transfer agent or the 

nature and scope of the services it provides? Do commenters believe Reg SCI or 

Reg SDR provide an appropriate model for potential transfer agent rules 

addressing cybersecurity issues? Why or why not? If so, which aspects of Reg 

SCI or Reg SDR might be most appropriate given the activities of transfer agents? 

Are there other models that might be appropriate for the Commission to consider 

when developing cybersecurity rules for transfer agents? Regardless of the 

framework utilized, should the Commission consider requiring certain minimum 

cybersecurity protocols, such as practicing good cyber hygiene, patching critical 

software vulnerabilities, and using multi-factor authentication? Should the 

Commission require transfer agents to implement heightened security protocols 

for their most sensitive data? If so, which data would merit special protection, 

and what form should that protection take? Please provide a full explanation.

59. Should the Commission require transfer agents to demonstrate a certain level of

operational capacity, such as IT governance and management, capacity planning, 

computer operations, development and acquisition of software and hardware, and 

information security? Why or why not? If so, what requirements should the 

Commission consider? For example, would it be appropriate to require transfer 

agents to adopt written procedures concerning all business services performed by, 

and IT and other systems used by, the transfer agent? Should the requirements be 

different depending on whether the transfer agent uses proprietary systems or 

contracts with outside parties for some or all of their services or IT and other 

systems? Should the requirements be different depending on the size of the 

transfer agent or the scope of its activities? Please provide a full explanation.

60. If the Commission proposes a rule requiring transfer agents to maintain a written 

business continuity or disaster recovery plan, what, if any, items should be 

required to be included in the plans in order to accomplish business continuity and 

disaster recovery objectives? Please provide a full explanation.

61. What risks do transfer agents face from internal or external cyber attacks? What 

costs, challenges, or issues do transfer agents face in dealing with those risks (e.g., 

costs and resources, government and industry cooperation, and information 
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sharing)? Are there different cybersecurity risks, or different best practices and 

procedures for addressing such risks, for transfer agents, depending on the size, 

activities, business lines, or technology infrastructure of the transfer agent? How 

often do transfer agents review operations and compliance policies and 

procedures related to cybersecurity? 

62. What tradeoffs should the Commission consider in addressing cybersecurity 

issues with respect to transfer agents? What evidence should it consider in 

evaluating those tradeoffs, including any benefits, burdens, or costs of specific 

rule proposals? Please provide a full explanation.

63. Are transfer agents who have offices or do business in multiple jurisdictions 

subject to different standards or requirements with respect to cybersecurity, data 

privacy or business continuity? Do those standards or requirements conflict with 

one another? If so, how and to what extent do those standards conflict?

64. What are the industry best practices with respect to identifying and addressing 

cybersecurity risk? What are the costs associated with any such best practices? 

Do commenters believe these costs are reasonable in light of relevant risks? 

65. What are industry best practices with respect to protecting electronic 

communications between and among transfer agents and other market participants 

using standardized communication protocols and standards? Should the 

Commission require standards for message encryption? Why or why not? Please 

provide a full explanation. 

66. What consequences for shareholders and issuers could result if the privacy of 

transfer agent records is compromised? Are there standards to which transfer 

agents should be required to adhere to reduce the possibility or likelihood of such 

an occurrence? Similarly, what consequences for shareholders and issuers could 

result from actions taken by impersonators due to inadequate authentication 

and/or attempts to cancel or repudiate previously executed instructions? Do the 

current processes and requirements for signature guarantees apply adequately in 

an electronic environment?

67. How often do transfer agents review operations and compliance policies and 

procedures related to cybersecurity? Are third-party vendors utilized and, if so, to 

what extent? Where third-party vendors are utilized, how do transfer agents 

conduct oversight of such vendors? 

68. Should the Commission require transfer agents to have a minimum level of 

cybersecurity protection, and if so, what should those levels be? Should the 

Commission prohibit indemnification of transfer agents by issuers for liability for 

losses due to the agents’ cybersecurity weaknesses? Why or why not?
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69. Should the Commission require transfer agents to maintain minimum insurance 

coverage for operational risks associated with transfer agent operations and 

services, including cybersecurity losses? Why or why not? Should the level and 

type of coverage be based on the transfer agent’s particular circumstances? If so, 

what requirements and level of coverage would be appropriate for what 

circumstances? 

70. A new technology, the blockchain or distributed ledger system, is being tested in 

a variety of settings, to determine whether it has utility in the securities 

industry.421 What utility, if any, would a distributed public ledger system have for 

transfer agents, and how would it be used? What regulatory actions, if any, would 

facilitate that utility? How would transfer agents ensure their use of or interaction 

with such a system would comply and be consistent with federal securities laws 

and regulations, including the transfer agent rules? Please explain. 

71. What costs, benefits, and burdens, if any, would the potential requirements 

discussed above create for issuers or transfer agents?

F. Definitions, Application, and Scope of Current Rules

The Commission intends to propose certain amendments to Rules 17Ad-1 through 17Ad20 designed to modernize, streamline, and simplify the overall regulatory regime for transfer 

agents and bring greater clarity, consistency, and regulatory certainty to the area, as well as 

mitigate any unnecessary costs or other burdens resulting from now obsolete or outdated 

requirements. In particular, the Commission intends to propose to: (i) rescind Rules 17Ad-18 

and 17Ad-21T; (ii) consolidate all definitions, including those in Rule 17Ad-1 and 17Ad-9, as 

well as specific definitions embedded in Rules 17Ad-5 (written inquiries), 17Ad-15 (signature 

guarantees), 17Ad-17 (lost securityholders), and 17Ad-19 (cancellation of securities certificates) 

 

421 See generally, Nasdaq Announces Inaugural Clients for Initial Blockchain-Enabled Platform “Nasdaq 

Linq”, Nasdaq (Oct. 27, 2015), http://www.nasdaq.com/press-release/nasdaq-announces-inaugural-clientsfor-initial-blockchainenabled-platform-nasdaq-linq-20151027-00986 (announcement regarding Nasdaq’s 

use of blockchain technology to create a platform for trading shares of privately-held trading); Matthew 

Leising, Blockchain Potential for Markets Grabs Exchange CEOs’ Attention, Bloomberg Business (Nov. 4, 

2015), http://www.bloomberg.com/news/articles/2015-11-04/futures-market-ceos-says-blockchain-showsserious-potential (discussing financial services industry’s interest in blockchain technology). 
Page 146 of 208

into a single rule; (iii) update various definitions and references throughout the rules to 

correspond more accurately to the prevailing industry practices and standards, including 

clarifying that Rule 17Ad-2’s turnaround provisions apply with equal force to book-entry 

securities and clarifying, where appropriate, that other references to “certificates” include bookentry securities, defining the terms “promptly, “as soon as possible,” and “non-routine” in Rule 

17Ad-2, and other clarifications; (iv) update the current turnaround, recordkeeping, and retention 

requirements to correspond more closely to the operations and capabilities of modern transfer 

agents; (v) amend the recordkeeping and retention requirements in Rules 17Ad-7 (record 

retention), 17Ad-10 (prompt posting of certificate detail, etc.), 17Ad-11 (aged record 

differences), and 17Ad-16 (notice of assumption and termination) and consolidate them into a 

single rule; (vi) update the dollar and share thresholds reflected in Rule 17Ad-11 (aged record 

differences); (vii) amend Rule 17Ad-13 to provide additional and more useful information 

regarding transfer agents’ internal controls; (viii) amend Rule 17Ad-15 to require transfer agents 

to document in writing their procedures and requirements for accepting signature guarantees; and 

(ix) propose other new rules and amendments designed to address certain TA activities not 

currently addressed by the rules, as discussed throughout this release.

Further, the Commission’s core books and records rules for transfer agents, Exchange 

Act Rules 17Ad-6 and 17Ad-7, prescribe minimum recordkeeping requirements with respect to 

the records that transfer agents must make and record retention requirements specifying how 
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long those records and other documents relating to a transfer agent’s business must be kept.422 

These requirements, adopted in 1977, were intended to serve a dual purpose: (1) to assure that 

transfer agents are maintaining the minimum records necessary to monitor and keep adequate 

control over their own activities and performance; and (2) to permit the appropriate regulatory 

authorities to examine transfer agents for compliance with applicable rules.423 The Commission 

is concerned that the scope of the recordkeeping and record retention rules may no longer be 

broad enough to serve this dual purpose relative to the expanded scope of the activities and 

services that transfer agents provide today as discussed throughout this release. Accordingly, the 

Commission intends to propose certain amendments to Rules 17Ad-6 and 17Ad-7 to ensure they 

adequately address: (i) any new or amended registration, reporting, and disclosure requirements 

adopted by the Commission; (ii) any new or amended contract rules adopted by the Commission; 

(iii) any new or amended safeguarding requirements adopted by the Commission, including 

amendments to Rule 17Ad-12; (iv) any new or amended business recovery, information security, 

operational, or cybersecurity requirements proposed by the Commission; and (v) any conforming 

or other changes or additions to the Commission’s transfer agent rules. The Commission seeks 

comment on the following:

72. Are any of the current transfer agent rules outdated or obsolete? If so, which ones 

and why? Do commenters believe that any such outdated or obsolete portions of 

the transfer agent rules create confusion or inefficiency among transfer agents, 

issuers, investors, and other market participants? Why or why not? Please 

provide a full explanation.

 

422 Exchange Act Rule 17Ad-6, 17 CFR 240.17Ad-6; Exchange Act Rule 17Ad-7, 17 CFR 240.17Ad-7. For a 

more detailed description of the recordkeeping and record retention requirements for transfer agents, see

supra Section IV.A.2.

423 See Rule 17Ad-1 through 17Ad-7 Adopting Release, supra note 145.
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73. Should the Commission eliminate or amend any of the definitions in the transfer 

agent rules? If so, which ones and why? For example, should the Commission 

eliminate references to “control book,” “processing,” “process” deadlines, and 

“outside registrar”? Are there any other definitions which should be amended? 

Why and how? Please provide a full explanation. 

74. Should the Commission eliminate the current exemption in Rule 17Ad-4 for small 

transfer agents? Why or why not? Have circumstances in the industry changed 

such that the original rationale for this exemption should be reconsidered? Should 

the Commission take into account the size of a transfer agent, or any other 

measure, in determining whether the current exemption is appropriate? Why or 

why not? Please provide a full explanation.

75. Currently, Rule 17Ad-5 (written inquiries and requests) permits transfer agents to 

respond to certain instructions and inquiries “promptly” rather than within a 

specified time period unless the requestor provides specific detailed information, 

such as a certificate number, number of shares, and name in which the certificate 

was received. In commenters’ experience, is the detailed information specified in 

Rule 17Ad-5 an accurate description of the minimum information necessary to 

permit a transfer agent to identify the subject of an inquiry or instruction and 

respond? If not, what other information would allow a transfer agent to identify 

the subject of the inquiry and respond? 

76. Does Rule 17Ad-5 address the full scope of inquiries received by transfer agents? 

If not, what additional types of inquiries and requests do transfer agents receive, 

and in what volume? How are those inquiries received (e.g., letter, email, phone, 

fax, internet)? Should the Commission include additional inquiries within the 

scope of Rule 17Ad-5? Why or why not? If so, what types of inquiries should be 

included and what types should be excluded? Please provide a full explanation. 

77. Should the Commission update Rule 17Ad-6 to expand the categories and types 

of records required to be maintained by registered transfer agents? Why or why 

not? If so, what requirements should the Commission consider? Please provide a 

full explanation.

78. Should the Commission eliminate or amend the requirement to escrow “source 

code” in Rule 17Ad-7 (record retention)? Why or why not? How do transfer 

agents comply with this requirement, and what are the benefits, costs, burdens, 

and tradeoffs associated with those efforts? If the Commission amends rather 

than eliminate the requirement, what amendments should the Commission 

consider? Please provide a full explanation. 

79. Rule 17Ad-7(g) requires certain records to be made available to the Commission. 

What records do commenters believe should be covered by the rule? Are there 

electronic communication standards in use by the industry to transfer such records 

and, if so, should the Commission require their use? Why or why not?
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80. Are the different record retention requirements in Rules 17Ad-7 (record 

retentions), 17Ad-10 (prompt posting of certificate detail, etc.), 17Ad-11 (aged 

record differences), and 17Ad-16 (notice of assumption and termination) still 

appropriate in light of transfer agents’ operational and technological capabilities? 

Why or why not? Particularly in light of the prevalence of electronic records, 

should retention periods for all documents be similar? Why or why not? For the 

records that transfer agents are required to maintain, should the Commission 

require a longer or shorter retention period? Why or why not? Please provide a 

full explanation. 

81. Does the current definition of certificate detail in Rule 17Ad-9 (definitions) 

reflect current processes? Why or why not? For example, should the 

Commission amend the definition to include additional information relevant to 

identifying the specific security, such as CUSIP number or a unique product 

identifier if available, or additional information relevant to identifying the 

investor, such as investor email address and phone number? Why or why not? 

Do commenters believe such information would help transfer agents identify lost 

securityholders or improve securityholder communications? Please provide a full 

explanation.

82. With respect to Rule 17Ad-11 (aged record differences), which requires reports 

for actual overissuances, should the Commission require transfer agents to 

provide issuers with information about all aged differences, rather than just 

differences that lead to overissuance? Why or why not? Are the current dollar 

and share thresholds reflected in Rule 17Ad-11 appropriate indicators of current 

or impending problems? Should the thresholds be amended? If so, what 

thresholds would be more appropriate? Are commenters aware of instances 

where impending problems were not reported because the dollar or share 

threshold did not apply to the situation? Please provide a full explanation.

83. Should the Commission again consider expanding Rule 17Ad-14 (tender agents) 

to include reorganization events such as conversions, maturities, redemptions, and 

warrants, as it proposed in 1998?424 Why or why not? Please provide a full 

explanation. 

84. What are the current best practices with regard to accepting signature guarantees, 

if any? Should the Commission amend Rule 17Ad-15 to require transfer agents to 

document in writing their procedures and requirements for accepting signature 

guarantees? Why or why not? Should the Commission require transfer agents to 

establish and comply with certain minimum procedures and requirements related 

 

424 Processing of Reorganization Events, Tender Offers, and Exchange Offers, Exchange Act Release No. 

40386 (Aug. 31, 1998), 63 FR 47209 (Sept. 4, 1998).
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to accepting signature guarantees? Why or why not? If so, what procedures and 

requirements should be required, and why? Please provide a full explanation.

85. Should the Commission amend Rule 17Ad-16 (notice of assumption)? Why or 

why not? If so, what amendments should be considered, and why? Is the 

information required by Rule 17Ad-16 already provided to the industry, including 

DTC? If yes, how is that information being provided to the industry? Is there an 

industry standard for electronic communications of these changes? Please 

provide a full explanation. 

86. Are there other amendments to the rules that commenters believe would be 

appropriate or beneficial that the Commission should consider? Please provide a 

full explanation. 

87. What costs, benefits, and burdens, if any, would the potential requirements

discussed above create for issuers or transfer agents?

G. Conforming Amendments 

In connection with the potential new rules and rule amendments discussed above, the 

Commission also intends to propose rules for conforming and other revisions to Forms TA-1 and

TA-2 and to Rules 17Ad-1 through 17Ad-20, as appropriate. For example, the Commission may 

propose to amend Section 8(a)(iv) of Form TA-1 to require disclosure of employees’ actual 

percentage ownership of the transfer agent, rather than whether their percentage ownership falls 

within a broad range. The Commission also intends to propose defining or clarifying certain 

terms and definitions used in the forms, such as “independent, non-issuer” and “control,” which 

are not currently defined in Form TA-1, and to clarify the type of disciplinary history required to 

be disclosed by Question 10. The Commission preliminarily believes that such clarifications 

would help ensure that transfer agents are interpreting, completing, and filing the requisite forms 

in a consistent manner. The Commission requests comment on all aspects of the conforming and 

other amendments described above.
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VII. CONCEPT RELEASE AND ADDITIONAL REQUEST FOR COMMENT 

This section discusses additional regulatory, policy, and other issues associated with 

transfer agents beyond those discussed above in Section VI and seeks comment to identify, 

where appropriate, possible regulatory actions to address those issues. In particular, we discuss: 

(i) the processing of book-entry securities by transfer agents; (ii) differences between transfer 

agent recordkeeping for registered securityholders and broker-dealer recordkeeping for 

beneficial owners; (iii) characteristics of and issues associated with transfer agents to mutual 

funds; (iv) crowdfunding; (v) services provided by transfer agents and other entities that act as 

“third party administrators” for issuer-sponsored investment plans; and (vi) issues associated 

with outside entities engaged by transfer agents to perform certain services. Throughout, we 

seek comment regarding the issues raised, and conclude with a series of requests for comment on 

potential broad changes to the overall regulatory regime for transfer agents that may be 

appropriate in light of the issues discussed throughout this release. 

A. Processing of Book-Entry Securities

Most municipal and corporate bonds, U.S. government and mortgage-backed securities, 

commercial paper, and mutual fund securities, are offered almost exclusively in book-entry form 

(i.e., certificates are not available).425 While equities have lagged behind this trend, they too 

have been moving closer to full dematerialization.

426 At the same time, much of the terminology 

and definitions found in the Commission’s transfer agent rules were written, and therefore 

 

425 See generally, Strengthening the U.S Financial Markets, A Proposal to Fully Dematerialize Physical 

Securities, Eliminating the Cost and Risks They Incur, A White Paper to the Industry, DTCC 1, 3-6 (July 

2012), available at

http://www.dtcc.com/~/media/Files/Downloads/WhitePapers/Dematerialize_Securities_Jul._2012.pdf.

426 Id.
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reflect, a time when most securities were certificated. For example, the definitions of “item” and 

“transfer” in Rules 17Ad-1, 17Ad-2, and 17Ad-4 primarily reference certificated securities.427 

Likewise, Rule 17Ad-10, which addresses a transfer agent’s buy-in requirement in the event of 

physical overissuance of securities, refers only to “certificates.”428 

Although many of the transfer agent rules refer only to certificated securities, it has long 

been the Commission’s position that, absent an explicit exemption, all of the transfer agent rules 

apply equally to both certificated and uncertificated securities, particularly in cases where the 

rules impose time limits within which a transfer agent must turn around or process a transfer. 

For example, when adopting Rules 17Ad-9 through 17Ad-13 in 1983, the Commission clarified 

in its response to public comments that the definition of certificate detail in Rule 17Ad-9 applies 

with equal force to both certificated and uncertificated securities and related account details.429 

In that same adopting release, the Commission noted that exemptions respecting uncertificated 

securities are inappropriate in regulations regarding registered transfer agents’ accurate creation 

and maintenance of issuer securityholder records and safeguarding of funds and securities in 

their operations.430 

At the same time, the Commission is aware that differences of interpretation among 

transfer agents may result in widely varying compliance practices, procedures, and controls 

among transfer agents. For example, because Rule 17Ad-10(g) refers specifically to 

 

427 See, e.g., Exchange Act Rules 17Ad-1(a)(1)(i), (d), 17 CFR 240.17Ad-1(a)(1)(i), (d). 

428 See Exchange Act Rule 17Ad-10(g)(1), 17 CFR 240.17Ad-10(g)(1).

429 See 17Ad-9 through 13 Proposing Release, supra note 2 (noting that the reference to “certificate detail” 

does not necessarily require the existence of a “certificated security.” Rather, it reflects the items of 

information regarding the registered owner and of the security, regardless of the form of the security.). 

430 Id.
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certificates,431 Commission staff have received questions regarding the rule’s applicability to 

overissuances that did not involve certificated securities, indicating that, in applying that rule, 

some transfer agents may buy-in securities if an overissuance involved certificated securities, but 

not if it involved book-entry securities. 

The Commission believes it is appropriate to consider possible amendments to address 

the applicability of the transfer agent rules to uncertificated or book-entry securities, including 

those held in DRS or issued by investment companies such as mutual funds.432 Accordingly, the 

Commission seeks comment on the following:

88. Should the Commission amend the existing rules in light of the significant 

increase in book-entry securities? If so, what approach should the Commission 

take? For example, although a significant percentage of transfer instructions are 

categorized as non-routine items under the current rules (such as investor requests 

for certificates, to close accounts, and to act in certain types of corporate actions), 

there are no specific processing requirements for non-routine items. Should the 

same processing obligations apply to all instructions, thereby dispensing with the 

current routine and non-routine distinctions in Exchange Act Rule 17Ad-1? 

Alternatively, or in conjunction with that approach, should the existing rules be 

amended to explicitly apply transfer agents’ processing obligations, not only to 

“transfers” as defined in Rule 17Ad-1, but also to the entire range of instructions a 

transfer agent may receive, including those related to uncertificated securities, 

such as purchase and sale orders, balance certificates, establishment and 

movement of book-entry positions, corporate actions, and updates of 

securityholder book-entry account information? Why or why not? Are there 

other approaches that would be appropriate? If so, please describe.

89. What policies, concerns, factors, and other considerations do commenters believe 

should inform any approach the Commission might take to ensure the transfer 

 

431 Exchange Act Rule 17Ad-10(g), 17 CFR 240.17Ad-10(g). 

432 Exchange Act Rule 17Ad-4(a) exempts from the application of Exchange Act Rule 17Ad-2, among other 

rules from which it provides exemption, securities held in a DRIP, redeemable securities of registered 

investment companies (which include open-end investment management companies (i.e., mutual funds)) 

and limited partnership interests. Consequently, the provisions of Rule 17Ad-2 which are a fundamental 

part of Commission regulation of transfer agent processing of securities do not apply to mutual fund shares 

or securities held in Issuer Plans that are DRIPs. 
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agent rules apply appropriately to book-entry securities? For example, in 

determining whether a specific rule or requirement is appropriate, should the 

focus of the Commission’s consideration be on the physical nature of the security 

(whether certificated or uncertificated), or market-based factors, such as whether 

there is a potential for backlog to occur based on trading volume in the particular 

type of asset, or both and why? Are there other appropriate considerations? If so, 

please describe. 

90. Given that transfer and other requests now often involve the highly automated 

processing of book-entry securities rather than manual processing of certificates, 

should the Commission modify or eliminate the turnaround and processing 

requirements of Rules 17Ad-1 and 17Ad-2? Why or why not? For example, is 

the distinction between items received before noon and items received after noon 

still relevant given that the vast majority of requests are now received and 

responded to electronically? Should the Commission shorten the timeframe for 

fulfilling instructions and/or increase the percentage of transfer instructions that 

must be fulfilled within those timeframes each month? Why or why not? 

91. Should the Commission shorten Rule 17Ad-9’s permitted timeframes for posting 

credits and debits to the master securityholder file? Should the Commission 

require that certificate details be dispatched daily? Why or why not? 

92. Are commenters aware of instances where securityholders or broker-dealers 

cannot determine whether their securities have been processed by transfer agents, 

despite the requirements of Rule 17Ad-5? If so, please describe any such 

instances and indicate what requirements, if any, the Commission should consider

to address such instances. For example, should the Commission expand the 

definition of “item” to include presentation by both individual investors and 

broker-dealers or other intermediaries acting on behalf of individual investors and 

require transfer agents to report to the presentor of an item the status of any item 

for transfer not processed within the required timeframes? Why or why not?

93. It is the Commission staff’s understanding that investors have brought legal 

actions against transfer agents under state law to require the transfer agent to 

effect a transfer, including when the transfer agent claimed the securityholder’s 

instructions were not in good order and therefore the relevant securities were not 

transferred, or were delayed for a long period of time.433 Are commenters aware 

 

433 See, e.g., Kanton v. United States Plastics, Inc., 248 F. Supp. 353 (D.N.J. 1965) (involving common law 

claims); Bender v. Memory Metals, Inc., 514 A.2d 1109 (Del. Ch. 1986) (involving claim under UCC that 

transfer was rightful); Mackinder v. Schawk, Inc., No. 00 Civ. 6098 (DAB), 2005 WL 1832385, at *16 

(S.D.N.Y. Aug. 2, 2005) (involving shareholder claim under Delaware law to require the removal of 

restrictive legend reflecting restrictions imposed by stock purchase agreement).
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of these or other problems or issues associated with transfer agents failing to 

effect a securityholder’s transfer instructions within a reasonable period of time? 

If so, please describe the relevant facts and circumstances. For example, what 

factors might have led to such a situation and how was it resolved? What types of 

securityholders were directly involved? What were the adverse consequences, if 

any? 

94. Do commenters believe there are problems associated with transfer agents failing 

to effect or reject transfer instructions within a reasonable time? Should the 

Commission amend the rules to define what information or documentation is 

required and from whom it must be received to constitute good order? Should the 

Commission amend the rules to define the terms “reject” or “rejection” in 

connection with transfer instructions? Why or why not? Should transfer agents 

be required to communicate the specific reasons why an instruction was not a 

good order? Should transfer agents be required to buy-in securities (or take other 

corrective action to satisfy transfer instructions that were received in good order 

but not completed after a specific period of time)? If so, should the requirement 

apply broadly or be limited to specific conditions? Please explain. 

95. Are commenters aware of delays in processing incomplete or improper requests 

for DRS transactions? If so, what caused these delays, and would they be 

eliminated or reduced if transfer agents were to provide to securityholders the 

information the securityholder would need to prepare complete instructions for 

shares held in DRS? Please explain. 

96. Given that most securityholders no longer receive paper certificates evidencing 

their holdings, should the Commission require transfer agents to provide 

securityholders with an account statement with specific details for each 

transaction that occurred with respect to each securityholder’s account? If so, 

how and how often should such statements be provided and what information 

should be included? Please describe.

B. Bank and Broker-Dealer Recordkeeping For Beneficial Owners 

Although transfer agents provide critical recordkeeping and transfer services to registered 

owners, they generally do not have visibility beyond the master securityholder file and therefore 

rarely provide recordkeeping and transfer services to beneficial owners who hold in street name. 

Instead, recordkeeping and transfer services usually are provided to beneficial owners by the 
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intermediary through whom the beneficial owner purchased the securities, usually a brokerdealer or bank.434 Because many securityholders elect to hold exchange-traded securities in 

street name, many issuers have significantly more beneficial owners than registered owners. As 

a result, broker-dealers, banks, and other intermediaries may provide recordkeeping and transfer 

services to a larger portion of a given issuer’s shareholder base – the intermediaries’ customers –

than the registered transfer agent for that issuer. 

The transfer and recordkeeping services provided to beneficial owners by banks and 

brokers are largely identical to the recordkeeping and transfer services provided with respect to 

registered owners by registered transfer agents. For example, banks and brokers often maintain 

accountholder information details, process transfers and other changes to accounts, provide 

securityholder services such as call center support, and provide account statements showing 

ownership positions for their beneficial owner customers. Yet although these services may be 

nearly identical to the services provided to registered owners by transfer agents, banks and 

brokers are typically not required to register as transfer agents under the Exchange Act solely for 

providing these services to beneficial owners. This is because the positions serviced are 

 

434 Commission staff understands that some industry participants may refer to the recordkeeping and transfer 

services provided to beneficial owners by brokers and banks discussed herein as “sub-accounting” or “subtransfer agent” services. We note that the term sub-transfer agent in this context is not meant to imply a 

contractual relationship between the registered transfer agent who provides recordkeeping and transfer 

services for registered owners and the broker or bank that provides the same services for their own 

beneficial owner customers. Although brokers and banks who act as sub-transfer agents could contract with 

registered transfer agents to provide recordkeeping and transfer services for their beneficial owner 

customers, they rarely do so, choosing instead to provide these services themselves. 
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“securities entitlements” under the UCC rather than “Qualifying Securities” that trigger transfer 

agent registration.435

As street name registration has become more prevalent and the number of registered 

holders has decreased, more banks and brokers are providing to more investors critical transfer, 

processing, and recordkeeping services, but are not required to register with the Commission or 

other ARA as a transfer agent.436 This raises potential issues regarding the Commission’s 

regulation of securities processing as it pertains to the processing of equity securities by banks, 

brokers, and other intermediaries.

437 Specifically, if a bank or broker providing transfer and 

recordkeeping services to beneficial owners is not required to register as a transfer agent with the 

Commission or other ARA, it will not be required to comply with the Commission’s transfer 

agent rules, including the specific recordkeeping, processing, transfer, and other investor 

protection requirements imposed by those rules. While some banks and brokers may be subject 

to certain regulatory requirements depending on their specific activities, those regulations may 

not specifically address securities processing or provide the same investor protections as do the 

Commission’s transfer agent rules. For example, registered broker-dealers are subject to 

extensive books and records requirements pursuant to Exchange Act Rule 17a-3, but that rule 

does not impose the same ownership and transfer recordkeeping requirements as the transfer 

 

435 See supra note 115 (UCC definition of “securities entitlement”), Section IV.A (discussing provisions of the 

Exchange Act regarding Qualifying Securities).

436 Id.

437 There are of course other issues raised by the increasing prevalence of bank and broker recordkeeping for 

beneficial owners, including complexity in the proxy distribution and voting systems and barriers to 

communication between securityholders and issuers. These issues are beyond the scope of this release but 

have been discussed in other Commission releases. See, e.g., Final Street Name Study, supra note 82; 

Proxy Concept Release, supra note 112. We discuss certain issues concerning bank and broker processing 

of investment company securities below in Section VII.C.4.
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agent rules such as Exchange Act Rule 17Ad-10, which imposes detailed information 

requirements with respect to every securityholder account position.438 Further, some third party 

administrators439 and other intermediaries who provide recordkeeping, administrative, and other 

services for retirement and issuer plans may not be regulated directly at all by any federal 

financial regulator. Any risks or other issues associated with these intermediaries’ activities 

become more acute as street name ownership, and the resulting volume of processing of street 

name book-entry positions by brokers, banks, and other intermediaries providing transfer and 

recordkeeping services to beneficial owners, continues to increase.440 

The Commission seeks comment on the following:

97. Are there regulatory discrepancies among transfer agents and banks and brokers 

who provide similar services for beneficial owners? If so, what are they and do 

they present risks or raise competition issues in the market for these services? If 

so, what are the competition issues or risks associated with any such 

discrepancies, and what approach, if any, should the Commission consider to 

address them? Please provide a full explanation.

98. Are there reasons why the Commission should regulate transfer agent processing 

of registered owner securities held in book-entry positions differently than bank 

and broker processing of street name positions held in book-entry form? If so, 

please describe them. Please provide a full explanation.

 

438 We note, however, that Rule 17a-3 does contain several requirements related to securityholder accounts, 

such as a “blotter” that shows “the account for which each such transaction was effected” as well as other 

details, and an “account record” with detailed identifying information for each customer or owner, such as 

their name, address, and date of birth, as well as their annual income, net worth, and the account's 

investment objectives. 

439 Third party administrators are discussed in more detail below in Section VII.E.

440 For example, Professor Egon Guttman identified the lack of regulation of broker-dealer street name 

ownership processing as a key regulatory gap and advocated closing it as one of his key recommendations 

for regulatory improvement. See Egon Guttman, Federal Regulation of Transfer Agents, 34 Am. U. L. 

Rev. 281, 327-8 (1985), available at http://www.americanuniversitylawreview.org/pdfs/34/34-

2/Guttman.pdf. 
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99. In light of increased obligations under federal law for certain issuers to ascertain 

their securityholders’ identities and the barriers to doing so created by the street 

name system, as discussed above in Section III.B, should the Commission require

entities that are regulated by the Commission, including brokers, banks, or others 

who provide transfer and recordkeeping services to beneficial owners, to provide 

or “pass through” securityholder information to transfer agents? If so, what type 

of information should be provided and how should it be transmitted? What would 

be the effect on the actions and choices of affected parties, including transfer 

agents, banks and brokers, issuers, registered owners, and beneficial owners? 

Please provide a full explanation.

100. If the Commission were to require certain registrants to pass through 

securityholder information regarding beneficial owners to transfer agents, should 

the Commission prohibit transfer agents from using such information for other 

than certain prescribed purposes? If so, for what purposes should such 

information be allowed to be used, and why? For example, should the 

information be used solely for the transfer agent’s legal/compliance purposes, or 

should it be permitted to be used for other purposes, such as securityholder 

communications? Should transfer agents’ ability to share information be limited, 

particularly where information is shared in return for compensation or where 

information sharing is not fully disclosed to parties such as the issuer or the 

securityholder? Why or why not? Should such information be permitted to be 

shared only with the securityholder’s consent? Please provide a full explanation. 

C. Transfer Agents to Mutual Funds

U.S. registered investment companies managed $18.7 trillion in assets at year-end 

2014.441 This figure is primarily comprised of mutual funds (i.e., open-end management 

investment companies or “open-end funds”), but also includes closed-end management 

investment companies (“closed-end funds”) of $289 billion, unit investment trusts (“UITs”)442 of 

 

441 See Testimony of David W. Grim, Director, Division of Investment Management, before the House 

subcommittee on Capital Markets and Government Sponsored Enterprises (Oct. 23, 2015) (“Grim 

Testimony”). 

442 UITs are funds that offer a fixed, unmanaged portfolio, generally of stocks and bonds, as redeemable 

“units” to investors for a specific period of time, each of which represents an undivided interest in a unit of 

specified securities. See Investment Company Act Section 4(2), 15 U.S.C. 80a-4(2).
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$101 billion, and exchange-traded funds (“ETFs”)443 of approximately $2 trillion, which have 

seen considerable growth in recent years.444 While the discussion on transfer agents to mutual 

funds is focused on open-end funds, the Commission also seeks comment on transfer agents to 

other registered investment companies as discussed in Section 5 below.

Open-end funds445 have become one of the main investment vehicles for retail 

investors446 in the United States and play a major role in the U.S. economy and financial 

markets. When the first transfer agent rules were adopted in 1977, there were approximately 477 

mutual funds with $48 billion in assets for shareholders in just under 8.7 million accounts.447 By 

the end of 2014, there were approximately 7,900 mutual funds with approximately $16 trillion in 

assets448 held on behalf of hundreds of millions of investors.449

 

443 ETFs may be formed as either open-end funds or UITs.

444 See Grim Testimony, supra note 441. 

445 Open-end management investment companies are a type of registered investment company under Section 8 

of the Investment Company Act that issue redeemable securities. Other types of investment companies 

include, but are not limited to, closed-end funds and UITs. See Investment Company Act Sections 4(2), 15 

U.S.C. 80a-4(2) (definition of unit investment trust) and 5(a) (definition of open and closed-end 1940 Act 

companies). ETFs are typically organized as open-end funds or UITs. 

446 See Grim Testimony, supra note 441; see also Investment Company Institute, 2015 Investment Company 

Fact Book, 29 (2015), available at http://www.ici.org/pdf/2015_factbook.pdf (“2015 ICI Factbook”). At 

year-end 2014, retail investors (i.e., households) held the vast majority (89 percent) of the nearly $16 

trillion in mutual fund assets, whereas institutions held about 11 percent.

447 2015 ICI Factbook, supra note 446, at 173 (Data sec. 1, tbl. 1).

448 Id.

449 The number of shareholder accounts last reported by the Investment Company Institute (“ICI”) was 

approximately 265 million in 2013 and includes a mix of individual and omnibus accounts (excluding 

certain underlying beneficial owner accounts), thus understating the total number of shareholder accounts 

for funds. See ICI, 2014 Investment Company Fact Book, 168 (2014), available at

http://www.ici.org/pdf/2014_factbook.pdf. 
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By mid-2014, 53.2 million households, approximately 43 percent of all U.S. households, 

owned mutual funds.450 Today, the typical investor has $103,000 invested in mutual funds, 

which, for approximately 68 percent of investors, represents more than half of their household 

financial assets.451 For many of these investors, mutual funds are their primary source of 

investing for retirement, higher education, and other financial goals.452 Historically, many 

mutual fund investors purchased their shares “direct” from the fund or through the fund’s 

transfer agent.453 However, today many investors engage an investment professional (also 

referred to as an “intermediary” for beneficial owners of fund shares), such as a broker-dealer or 

investment adviser454 who provides many services, such as helping them identify their financial 

goals, analyzing an existing financial portfolio, determining an appropriate asset allocation, and 

(depending on the type of investment professional) providing investment advice or 

recommendations.455 In addition, many intermediaries have arrangements with the mutual fund 

or the mutual fund’s transfer agent to perform the underlying shareholder recordkeeping and 

servicing for their customers’ mutual fund positions.456 Under such arrangements, the 

 

450 2015 ICI Factbook, supra note 446, at 114 (fig. 6.2). 

451 Id. 

452 Id.

453 In this section, when discussing transfer agents providing services to mutual funds, we refer to “Mutual 

Fund Transfer Agents,” and when discussing transfer agents to operating company issuers, or issuers whose 

business is not primarily investing in securities, we refer to “Operating Company Transfer Agents.”

454 Also, the 2015 ICI Factbook notes that among households owning mutual fund shares outside employersponsored retirement plans, 80 percent own fund shares through investment professionals. Id. at 104. 

455 Id. at 104 (“The investment professional also may provide ongoing services, such as responding to 

investors’ inquiries or periodically reviewing and rebalancing their portfolios.”).

456 Examples of these services include communicating with their customers about their fund holdings; 

maintaining their financial records; processing changes in customer accounts and trade orders; 

recordkeeping for customers; answering customer inquiries regarding account status and the procedures for 
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intermediary performs recordkeeping on their own books and other services with respect to the 

beneficial owner, and in many cases aggregates their customer records into a single or a few 

“omnibus” 457 accounts registered in the intermediary’s name on the Mutual Fund Transfer 

Agent’s recordkeeping system.458

We understand that the shift to omnibus account arrangements for mutual fund 

shareholders459 has altered the landscape of recordkeeping and other services provided to fund 

investors. This fundamental shift in the roles and responsibilities of traditional shareholder 

servicing and recordkeeping, however, has resulted in a lack of transparency of beneficial 

owners, their trading activities and related records.460

The complexity of recordkeeping for mutual fund shares also has increased significantly 

over the last several decades. The total number of mutual fund share classes offered increased 

 

the purchase and redemption of fund shares; providing account balances and providing account statements, 

tax documents, and confirmations of transactions in a customer’s account; transmitting proxy statements, 

annual reports and other communications from a fund; and receiving, tabulating and transmitting proxies 

executed by customers. 

457 Omnibus accounts are held by and registered in the name of a single intermediary, such as a broker, and the 

holdings in the account represent the aggregated positions of multiple beneficial owner customers of the 

intermediary. Typically, the issuer will not have information regarding the intermediary’s underlying 

beneficial owners. See ICI, Navigating Intermediary Relationships, 3, 6-7 (2009), available at

https://www.ici.org/pdf/ppr_09_nav_relationships.pdf. Regarding omnibus relationships generally, see 

also The Stock Market, supra note 8, at 542. 

458 The growth in retirement plan assets also has resulted in a significant increase in the number of third party 

administrators that perform retirement plan recordkeeping on behalf of mutual fund investors that are plan 

participants, whose mutual fund positions are held in omnibus accounts on the fund’s transfer agent 

recordkeeping system. Third Party Administrators are discussed further in Section VII.E.

459 See generally, Deloitte, Mutual Fund Directors Digest, The Omnibus Revolution: Managing risk across an 

increasingly complex service model (2012), available at 

http://www2.deloitte.com/content/dam/Deloitte/us/Documents/financial-services/us-fsi-fund-directordigest-1-090412.pdf (“Deloitte Digest on Omnibus Revolution”). 

460 See generally, PricewaterhouseCoopers LLP, Evolution of the Mutual fund Transfer Agent: Embracing the 

Challenges and Opportunities, 9 (July 2015), available at https://www.pwc.com/us/en/assetmanagement/investment-management/publications/assets/pwc-mutual-fund-transfer-agent-evolution.pdf

(“PWC Evolution of the Mutual Fund Transfer Agent”).
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from 1,243 share classes in 1984 to over 24,000 share classes in 2014.461 Historically, as 

products and share classes evolved, shareholders and their investment professionals looked for 

diversification by focusing on a mutual fund complex with a broad lineup of funds taking 

advantage of breakpoint discounts offered on their suite of mutual fund products.462 In recent 

years, however, many intermediaries are managing clients’ mutual fund investments using 

advisory type models, where typically a wide range of mutual fund investments from many 

different fund companies are utilized.463

The Commission understands that the growth in both mutual fund products and share 

classes offered has added complexity and requires Mutual Fund Transfer Agents to maintain, in 

addition to the master securityholder file, extensive CUSIP databases that define the 

characteristics and processing rules for each fund share class to ensure prospectus compliance 

and accurate processing and recordkeeping of mutual fund transactions.464 As a result, Mutual 

Fund Transfer Agents have made significant investments in technology advancements to manage 

 

461 2015 ICI Factbook, supra note 446, at 173 (Data sec. 1, tbl. 1).

462 See generally, ICI Research Perspective, Vol. 20, No.2, Mutual Fund Load Fees (May 2014), available at

https://www.ici.org/pdf/per20-02.pdf (“Thirty years ago, fund shareholders usually compensated financial 

professionals through a front-end load – a one-time, up-front payment for current and future services. That 

distribution structure has changed significantly.”). The report notes that there has been a marked reduction 

in load fees paid by mutual fund investors, from nearly 4 percent in 1990 to roughly 1 percent in 2013. It 

also notes that funds often waive load fees on purchases made through retirement plans, as well as waive or 

reduce load fees for large initial or cumulative purchases.

463 Id. In these advisory arrangements, the investment professional who sells mutual funds is assessing an 

asset based-fee (a percentage of the net assets managed for an investor), rather than a percentage of the 

dollars initially invested (a front-end load), utilizing newer free or low-fee share classes designed for 

advisory type programs. The report also notes that because of the recent trend toward asset-based fees the 

market share of traditional front-end and back-end load shares has fallen, while the market share of newer 

share classes that are no-load has increased substantially. 

464 We note that, generally, many of the recordkeeping and processing tasks discussed in this section may be 

performed by either the Mutual Fund Transfer Agent or the intermediary, depending on whether the 

investor holds his or her mutual fund shares directly with the mutual fund or through an intermediary. We 

focus herein primarily on transfer agents. 
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more frequent and diverse transaction processing and shareholder communications through 

different channels. The industry also has relied heavily on the automation developed through 

NSCC for processing and settling mutual fund transactions465 and exchanging and reconciling 

customer account information, whether held in direct or omnibus accounts.

466

The growth of the mutual fund industry since 1977, the attendant growth of the portion of 

the transfer agent community specifically focused on servicing that industry, the proliferation of 

fund share classes, the growth in intermediary omnibus account arrangements and the Mutual 

Fund Transfer Agent community, and the complexity of fund processing and reliance on NSCC’s 

systems (discussed below), are among the factors informing the Commission’s examination of its 

transfer agent rules.

1. Key Characteristics of Mutual Fund Transfer Agents

If any person performs for a mutual fund any services listed in Exchange Act Section 

3(a)(25), such as registering transfers and transferring registered investment company securities, 

the person must register with the Commission as a transfer agent pursuant to Exchange Act 

Section 17A(c)(1).

467 When mutual funds were first introduced, many transfer agents provided 

these services because the traditional services they offered to operating company issuers (i.e., 

issuers whose business is not primarily investing in securities), such as maintaining records of 

stock ownership, paying dividends, sending securityholder communications, and transferring 

 

465 See DTCC, 2014 Annual Report (2014), available at http://dtcc.com/annuals/2014/wealth-managementservices/index.php. The value of mutual fund (Fund/SERV) transactions reported was $4.9 trillion.

466 See PWC Evolution of the Mutual fund Transfer Agent, supra note 460.

467 Exchange Act Section 17A(c)(1), 15 U.S.C. 78q-1(c)(1).
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stock ownership, were easily adapted to the particularities of mutual funds.468 But as mutual 

fund processing and operations came to involve greater numbers of investors and intermediaries, 

greater numbers of products, and a broader array of services, some transfer agents evolved with 

the industry to specialize in the increasingly unique needs of mutual funds, creating a segment of 

the transfer agent industry that focuses, often exclusively, on servicing mutual funds.469 

Today, these specialized Mutual Fund Transfer Agents provide many of the same transfer 

and account maintenance services that other transfer agents perform for operating companies, 

including the recordkeeping, transfer, and related activities discussed above in Section V.470 

They also commonly provide recordkeeping and other services related to the mutual funds’ 

 

468 Lee Gremillion, Mutual Fund Industry Handbook: A Comprehensive Guide for Investment Professionals

(Sept. 2005) (“Mutual Fund Industry Handbook”). 

469 Id. Today, there is no overlap among the Mutual Fund Transfer Agents with the largest market share and 

the Operating Company Transfer Agents with the largest market share. Compare SourceMedia, Mutual 

Fund Service Guide, 41 (2015), available at http://www.mmexecutive.com/mutual-fund-guide/rankingstats/?service=transfer-agent (providing tables listing the ten largest Mutual Fund Transfer Agents by 

number of accounts and the eleven largest Mutual Fund Transfer Agents by number of clients) with Jessica 

Fritz, Audit Analytics, 2013 Transfer Agent Market Share: AST Still On the Rise (Oct. 14, 2013), available 

at http://www.auditanalytics.com/blog/2013-transfer-agent-market-share-ast-still-on-the-rise/ (providing 

charts showing the five largest Operating Company Transfer Agents by market share and the six largest 

Operating Company Transfer Agents by market share of initial public offerings).

470 For example, Mutual Fund Transfer Agents effect transfers in ownership of fund securities, which usually 

involves making changes to the master securityholder file but not cancelling or issuing certificates because 

almost all mutual fund securities are issued and held in book-entry form. They also facilitate 

communications between issuers and securityholders, including by sending to securityholders mutual fund 

prospectuses, confirmations, periodic account statements, semi-annual and annual reports, and proxy 

statements. See, e.g., Robert Pozen & Theresa Hamacher, The Fund Industry: How Your Money is 

Managed, 348 (2nd ed. 2015) (“Pozen & Hamacher”) (discussing transfer agent distribution of such 

materials). Mutual Fund Transfer Agents also distribute to securityholders tax information, such as 

estimates of fund distributions, Form 1099-DIV and Form 1099B. Id. at 349. They also process cash 

distributions by the fund, ensuring that cash from distributions is properly credited to securityholder 

accounts. Id. at 348. In addition, where securityholders elect to reinvest cash distributions by the fund by 

purchasing additional shares of the fund, Mutual Fund Transfer Agents help facilitate execution of the 

purchase and calculate and record the number of additional shares purchased. Id.
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recordkeeping obligations under the Investment Company Act.471 However, instead of 

processing exchange or OTC-traded equity or debt securities, like other transfer agents, Mutual 

Fund Transfer Agents process redeemable securities of investment companies registered under 

Section 8 of the Investment Company Act,472 which under Rule 17Ad-4, are exempt from: (i) the 

turnaround and processing requirements of Rule 17Ad-2; (ii) the limitations on expansion under 

Rule 17Ad-3; and (iii) key recordkeeping requirements related to the transfer agent’s processing 

and performance obligations under Rules 17Ad-6(a)(1)-(7) and (11).473 Thus, although they 

provide many services identical to those provided by Operating Company Transfer Agents, 

Mutual Fund Transfer Agents are exempt from the key turnaround, processing, performance, and 

recordkeeping requirements. 

Although many of the core services Mutual Fund Transfer Agents provide are similar to 

the core services provided by Operating Company Transfer Agents, there are differences. One is 

the degree to which the securities typically serviced by Mutual Fund Transfer Agents are 

dematerialized.474 The mutual fund industry was an early adopter of the practice of issuing 

shares in book-entry form. By the time the first Commission transfer agent rules were adopted in 

1977, registered ownership of mutual fund shares already had been predominantly 

dematerialized.475 In contrast, the trend towards dematerialization of registered ownership 

 

471 See Investment Company Act Rule 31a-1(b)(1), 17 CFR 270.31a-1(b(1) (requiring current journals 

detailing sales and redemptions of the investment company’s own securities and the trade date).

472 See supra note 183. 

473 Exchange Act Rule 17Ad-4(a), 17 CFR 240.17Ad-4(a). 

474 For discussion of dematerialization, see supra note 69 and accompanying text.

475 See 1971 Study of the Securities Industry Hearings, supra note 299 (statements of David Hughey, Senior 

Vice President-Operations, Putnam Management Co., Inc. that the percentage of Mutual Fund holders 
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positions of operating companies evolved over a much longer period of time through some of the 

incremental developments discussed in this release, such as DRS and issuer plans (e.g., DRIPs).

And, for beneficial owners, equity securities issued by operating companies have largely been 

immobilized in central securities depositories, as discussed above in Sections II and III. Thus, 

while both Mutual Fund Transfer Agents and Operating Company Transfer Agents today process 

large numbers of dematerialized securities, Mutual Fund Transfer Agents process them in larger 

numbers and have been doing so for a longer period of time.

There are also important differences in how Mutual Fund Transfer Agents are organized 

and compensated compared to Operating Company Transfer Agents generally. For example, 

there are, in general, three types of Mutual Fund Transfer Agent arrangements: (i) internal 

(which may also be referred to as “captive,” “affiliated” or “full internalization”),476 (ii) external 

(which may also be referred to as “third party” or “full service”), and (iii) hybrid (which may 

also be referred to as “remote vendor”).477 Mutual funds generally tend not to have employees; 

therefore, internal transfer agent services are not actually provided by the fund. “Internal”

 

owning in certificated form dropped from 72 percent in 1956 to 27.5 percent by 1969). It was estimated in 

1978 that less than 10% of registered owners of Mutual Fund shares requested certificates. See, e.g., 

Martin J. Aronstein, The Decline and Fall of the Stock Certificate in America, 1. J. Int’l L. 273, 278 (1978), 

available at http://scholarship.law.upenn.edu/jil/vol1/iss3/4. 

476 Mutual funds generally do not have employees. As a result, the Commission understands that transfer 

agent services that are characterized as being provided “internally” are not actually provided by the fund 

but are provided by personnel from the investment adviser to the mutual fund or by an affiliate of such 

investment adviser.

477 See generally, ICI, The Role and Responsibilities of a Mutual Fund Transfer Agent: Workbook, 4 (2001) 

(“Mutual Fund Transfer Agent Workbook”); PWC Evolution of the Mutual fund Transfer Agent, supra

note 460. For a discussion of one mutual fund complex’s evaluation of using the internal (“full 

internalization”), hybrid (“remote vendor”), or external (“full service”) Mutual Fund Transfer Agent 

models, see In the Matter of Smith Barney Fund Management LLC and Citigroup Global Markets, Inc., 

Exchange Act Release No. 51761 at 4-15 (May 31, 2005).
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transfer agents are typically affiliated with the mutual fund complex, or the fund’s investment 

adviser.478 The main advantage of an internal transfer agent arrangement is that it allows a 

mutual fund or fund complex to closely monitor the delivery and quality of services provided to 

securityholders, which may be important to attracting and retaining investors who value service 

quality.479 Larger mutual funds or mutual fund complexes may be more inclined to use internal 

transfer agents than their smaller counterparts because these funds’ sponsors may be better able 

to undertake the costs required to develop and maintain the extensive technology systems and 

internal workforce needed to provide service to a large number of accounts.480 External (or 

third-party) transfer agents are independent from (as opposed to being affiliated with) the mutual 

fund and its fund complex or investment adviser. While there may be variation from firm to 

firm, the external model may not require the same capital expenditures by fund sponsors as for 

internal transfer agent services, and therefore may be viewed as a cost effective alternative to the 

internal model.481 

 

478 “Independent” and “affiliated” are used generally in connection with this discussion and are not intended to 

refer to any particular definition of those terms in any of the provisions of the federal securities laws or 

other authorities. 

479 See, e.g., Mutual Fund Industry Handbook, supra note 468, at 277 (“In many cases, fund groups that 

outsource their transfer agent back-office functions perform investor service from their own, internal 

contact centers. This reflects the widespread belief that the quality of this visible service has competitive 

implications. The back-office functions, by contrast, must be performed correctly, but they offer little 

opportunity for the fund to differentiate itself from the competition.”).

480 See generally, Mutual Fund Transfer Agent Workbook, supra note 477. We note, however, even among 

larger mutual funds, it is possible for decisions to vary from firm to firm and for similar size firms to come 

to different conclusions concerning expected costs and the degree to which the mutual fund should 

internalize transfer agent services when faced with similar factors.

481 It is the understanding of the Commission that these capital expenditures to build and maintain transfer 

agent technology and infrastructure systems may be absent or reduced in the case of an external transfer 

agent because an external transfer agent may have already made these investments in the past and, to the 

extent some or all of the cost of those investments may be passed on to transfer agent issuer clients, the full 
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External transfer agents have their own business model, processing and procedural 

routines, computer systems, and service providers.482 Because of this independence, the mutual 

fund or mutual fund complex may have less input or control over how a fund’s securityholders 

are ultimately serviced. For this reason, some mutual funds use a hybrid transfer agent 

arrangement, whereby an internal transfer agent performs certain services in an effort to maintain 

control over the quality of the securityholder servicing relationship, and other services are subcontracted to an external transfer agent.483 For example, many mutual funds using a hybrid 

arrangement will use an external transfer agent for core record-keeping functions and an internal 

transfer agent for securityholder servicing, especially when such servicing involves direct 

interaction with mutual fund securityholders.484 As a result, there may be significant variation in 

services provided, technology resources and capability, and corporate structure and organization 

among Mutual Fund Transfer Agents. 

Mutual Fund Transfer Agents may also have different compensation arrangements than 

typical Operating Company Transfer Agents, which generally will be compensated on a per 

securityholder account basis. While Mutual Fund Transfer Agents may also be compensated on 

 

extent of the redistributed cost is unlikely to be borne by a single issuer and is more likely to be diffused 

across multiple issuers. 

482 In contrast to mutual funds, operating companies with a large number of shareholders rarely use the internal 

or hybrid models and nearly always use an external transfer agent, although there are exceptions where a 

public company serves as its own transfer agent, particularly among local utility companies and local banks 

where the administration to service stockholders as a transfer agent is already in place and where the 

stockholders are often customers of the company.

483 See, e.g., supra note 479 (discussing internal servicing and quality of service). 

484 See, e.g., Mutual Fund Industry Handbook, supra note 468, at 277 (citing ICI, Mutual Funds and Transfer 

Agent Billing Practices 1997 (1998) (finding that 87 percent of 483 funds surveyed performed such 

securityholder servicing “internally” (i.e., using personnel from the management company or an affiliate of 

the management company)).
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a per securityholder account basis, many of them instead receive compensation based on a 

percentage of a fund’s net assets.485 Mutual Fund Transfer Agent fees are typically the second 

largest expense borne by mutual funds, exceeded only by the investment management fee.486 

2. Increased Complexity

As a result of the collective effect of the five factors discussed below, transaction

processing for Mutual Fund Transfer Agents may be more complex or involve additional 

responsibilities as compared to Operating Company Transfer Agents. First, Mutual Fund 

Transfer Agents receive cash and perform calculations as a part of regular processing of 

transactions in shares of mutual funds to a greater extent than is involved in the day-to-day work 

of Operating Company Transfer Agents. As a general matter, unlike publicly traded equity 

securities, mutual fund securities are redeemable, meaning that investors in mutual fund 

securities (or their intermediaries) purchase or redeem mutual fund shares directly with the 

mutual fund itself rather than on the secondary market.487 Mutual fund securities must be 

purchased and redeemed at their current net asset value (“NAV”) per share next computed after 

receipt.488 Investor orders to purchase mutual fund shares are ultimately received by a Mutual 

 

485 Fee arrangements may vary from Mutual Fund Transfer Agent agreement to agreement and other fee 

permutations are possible, for example as an at-cost arrangement between an internal Mutual Fund Transfer 

Agent and the fund. 

486 See, e.g., Mutual Fund Industry Handbook, supra note 468, at 231 (“Transfer agent service is typically the 

largest component of a fund’s expense after investment management.”); H. Kent Baker, Greg Filbeck & 

Halil Kiymaz, Mutual Funds and Exchange-Traded Funds: Building Blocks to Wealth, 406 (2015) 

(analyzing 2014 data of one Mutual Fund and finding $21 million in transfer agent fees to have been the 

fund’s second largest expense after $65 million in investment management fees).

487 See Investment Company Act Sections 5(a), 2(a)(32), 15 U.S.C. 80a-5(a), 80a-2(a)(32) (defining open-end 

companies and redeemable securities, respectively). 

488 See Investment Company Act Rule 22c-1 17 CFR 270.22c-1. Under Rule 22c-1, commonly called the 

“forward pricing” rule, an investor who submits an order before the next computed NAV, generally 
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Fund Transfer Agent, regardless of whether the investor’s order is submitted directly by the 

investor or is submitted by an intermediary such as a broker (including where a broker may 

submit the order via NSCC’s Fund/SERV system).489 After receiving a purchase order, Mutual 

Fund Transfer Agents calculate the number of shares purchased in some cases (such as where the 

investor indicates the dollar amount the investor seeks to purchase rather than the number of 

shares). With respect to purchase orders from investors, Mutual Fund Transfer agents collect the 

payment for those shares, deposit the payment into the account of the custodian of the mutual 

fund, issue on behalf of the mutual fund the shares to be purchased, and record the transaction on 

the master securityholder file of the mutual fund.490 Mutual Fund Transfer Agents engage in a 

comparable process when an investor decides to redeem shares in a mutual fund. 

Second, Mutual Fund Transfer Agents also play a role that serves to assist in the 

determination of the appropriate price for an investor’s purchase or redemption order (which is 

based on the NAV per share and any applicable commissions or fees). They do so by 

coordinating with mutual fund administrators, who commonly perform the main calculations that 

 

calculated by most funds as of the time when the major U.S. stock exchanges close at 4:00 pm Eastern 

Time, receives that day's price, and an investor who submits an order after the pricing time receives the 

next day's price. See generally, Amendments to Rules Governing Pricing of Mutual Fund Shares, 

Investment Company Act Release No. 26288 (Dec. 17, 2003), 68 FR 70388 (Dec. 17, 2003) (proposing 

release).

489 For additional details regarding Fund/SERV, see Exchange Act Release No. 22928 (Feb. 20, 1986), 51 FR 

6954 (Feb. 27, 1986) (File No. SR-NSCC-85-09); Exchange Act Release No. 25146 (Nov. 20, 1987), 52 

FR 45418 (Nov. 27, 1987) (File No. SR-NSCC-87-08); Exchange Act Release No. 26376 (Dec. 20, 1988), 

53 FR 52544 (Dec. 28, 1988) (File No. SR-NSCC-88-08); Exchange Act Release No. 31487 (Nov. 27, 

1992), 57 FR 56611 (Nov. 30, 1992) (File No. SR-DTC-92-02).

490 See, e.g., Exchange Act Release No. 12440 (May 12, 1976), 41 FR 22595 (June 4, 1976) (ICI comment 

letter (July 19, 1976)) (“The mutual fund transfer agent receives cash for investment in mutual fund shares 

and pays cash to shareholders for the redemption of outstanding shares.”); Pozen & Hamacher, supra note 

470 (“The transfer agent is responsible for collecting payment for share purchases and arranging for its 

deposit into the fund’s bank account.”).
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assist a mutual fund in determining its NAV.491 The coordination with the mutual fund’s 

administrator is necessary, not only because Mutual Fund Transfer Agents must process 

purchases and redemptions at current NAV as described above, but because current NAV as 

calculated by the administrator on behalf of the mutual fund must reflect changes in the number 

of shares of the mutual fund outstanding pursuant to Investment Company Act Rule 2a4(a)(3).492 Because the Mutual Fund Transfer Agent is the entity primarily responsible for 

keeping track of this information on behalf of the mutual fund, the administrator typically 

receives this record of changes in the capital stock of the mutual fund from the Mutual Fund 

Transfer Agent. Because Mutual Fund Transfer Agent transaction processing is price-dependent 

as described above, if an error is made and later discovered in connection with some aspect of 

this process, the Mutual Fund Transfer Agent may need to reprocess all of the purchases and 

redemptions that were affected by the error (“as of” transaction processing). Both the daily NAV 

and any corrections are communicated by Mutual Fund Transfer Agents to intermediaries for 

transaction processing conducted on behalf of beneficial owners of mutual funds. 

Third, some mutual funds may provide their investors with options which may add 

additional complexity to the Mutual Fund Transfer Agent’s or intermediary’s processing tasks. 

For example, many mutual funds allow investors to exchange a mutual fund within the same 

 

491 The Commission understands that most mutual funds and other investment companies that are required to 

register with the Commission contract with one service provider for transfer agent services and a different 

provider for fund “administration,” which generally involves services such as calculation of NAV and 

management fee accruals. In contrast, it is the understanding of the Commission that many private funds 

(i.e., investment funds not registered with the Commission) use a single service provider for both transfer 

agent and administration functions. 

492 See Investment Company Act Rule 2a-4(a)(3), 17 CFR 270.2a-4(a)(3) (“Changes in the number of 

outstanding shares of the registered company resulting from distributions, redemptions, and repurchases 

shall be reflected no later than in the first calculation on the first business day following such change.”).
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fund complex without having to pay a sales load or other fee for purchasing shares of the new 

mutual fund. This arrangement may require Mutual Fund Transfer Agents (or intermediaries) to 

determine if the exchange qualifies for a waiver of the sales charge and to track the total time the 

investor has been invested in the mutual fund complex. In addition, some mutual funds may 

offer other services and options, such as systematic withdrawal plans, that may require Mutual 

Fund Transfer Agents and their intermediaries to keep track of a potentially wide range of 

securityholder elections, transaction types, and prospectus and business processing rules in 

CUSIP databases that are utilized for transaction processing. 

Fourth, the use of different sales load structures and distribution methods, particularly 

with respect to redemption of mutual fund securities, as well as other fee payments to 

intermediaries, also adds complexity in the mutual fund context. For example, for load funds, or 

funds that charge a sales load to the investor, Mutual Fund Transfer Agents commonly process 

and distribute related commission payments to intermediaries in connection with sales of mutual 

fund shares.493 As part of a distribution strategy, some mutual funds compensate distributors 

such as broker-dealers with trail commissions that are processed and distributed by the Mutual 

Fund Transfer Agent, even after completion of a sale.494 A Mutual Fund Transfer Agent may 

process redemption fee charges or track relevant information and give effect to sales load 

discounts (often referred to as breakpoints) for direct investors, often based on the amount 

 

493 In addition, if the mutual fund has a contingent deferred sales load (often referred to as a “back-end load”), 

transfer agents commonly process and distribute these commissions to distributors in connection with a 

redemption.

494 See Investment Company Act Rule 12b-1, 17 CFR 270.12b-1.
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invested or intended to be invested. Mutual Fund Transfer Agents also may process and 

distribute ongoing sub-transfer agency fees to intermediaries.495

Fifth, Mutual Fund Transfer Agents traditionally have functioned in a more central role in 

connection with clearing and settlement of securities transactions than have Operating Company 

Transfer Agents. With a mutual fund purchase or redemption, there is no clearing corporation 

involved that serves to novate trades as a central counterparty as in the case of a brokerfacilitated trade in an equity security on a national securities exchange (as shown in Figure 1 in 

Section III.B above) because mutual funds generally are not exchange-traded.496 As a result of 

this clearance and settlement environment, Mutual Fund Transfer Agents interact with subtransfer agents such as broker-dealers, who hold shares on behalf of their beneficial owner 

customer, similar to the way in which DTC interacts with Operating Company Transfer 

Agents.497 Mutual Fund Transfer Agents also maintain on the master securityholder file 

omnibus positions for intermediaries (on behalf of the intermediaries’ beneficial ownercustomers), which is similar to the way in which DTC maintains securities accounts of 

participants, but there is no jumbo Cede & Co. position at DTC in the case of a mutual fund.

 

495 See supra Section VII.B for a discussion of sub-transfer agents.

496 While as discussed above, there is no clearing corporation that serves as central counterparty in mutual 

fund transactions, there are services provided by NSCC, such as Fund/SERV and Networking. This 

centralized clearance and settlement platform employs standardized data fields and protocols for mutual 

fund transaction processing and daily net settlements, through which intermediaries such as brokers may 

transmit and settle orders with Mutual Fund Transfer Agents. For additional details regarding Fund/SERV, 

see supra note 489.

497 See supra note 113 for definition of sub-transfer agent.
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3. Compliance and Other Services

Many Mutual Fund Transfer Agents may assist mutual funds with their compliance 

obligations, not only with respect to general recordkeeping obligations, but also to enable mutual 

funds to comply with regulations to which operating companies may not be subject in the same 

way or at all.498 One such obligation is that mutual funds have various “client on-boarding” 

requirements under federal law499 and commonly rely upon their Mutual Fund Transfer Agent to 

do the work that will enable the mutual fund to meet such obligations. For example, mutual 

funds are required to implement anti-money laundering (AML) programs pursuant to an interim 

final rule of the Treasury.500 In addition, mutual funds are required to establish customer 

identification programs pursuant to a joint rule of the Commission and Treasury.501 That rule 

requires, at a minimum, that the mutual fund verify an investor’s identity to the extent reasonable 

and practicable, maintain records of the information used to verify identity, and determine 

whether the investor appears “on any list of known or suspected terrorists or terrorist 

organizations issued by any federal government agency and designated as such by Treasury in 

 

498 Regarding general recordkeeping obligations, see Investment Company Act Rule 31a-1(b)(1), 17 CFR 

270.31a-1(b)(1) (requiring current journals detailing sales and redemptions of the investment company’s 

own securities and the trade date). 

499 See, e.g., Bank Secrecy Act Section 5312(a)(2) (including “investment compan[ies]” within the definition 

of “financial institution”). Transfer agents may also be subject directly to related federal requirements that 

do not apply solely to “financial institutions.” See, e.g., Section 6050I of the Internal Revenue Code,26 

U.S.C. 6050I (requirement to report to Internal Revenue Service receipt of cash in excess of $10,000 in a 

single or related transaction). 

500 See Financial Crimes Enforcement Network, Anti-Money Laundering Programs for Mutual Funds, 67 FR 

21117 (Apr. 29, 2002).

501 31 CFR 103.131; see Customer Identification Programs for Mutual Funds, Investment Company Act 

Release No. 26031 (Apr. 29, 2003), 68 FR 25131 (May 9, 2003).
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consultation with the federal functional regulators.”502 While mutual funds bear ultimate 

responsibility for compliance, as a practical matter, the customer identification processes 

commonly are carried out by Mutual Fund Transfer Agents for direct investors.

503 In addition, 

mutual funds are required to report suspicious transactions (“Suspicious Activity Reports”) to the 

Treasury’s Financial Crimes Enforcement Network.504 Mutual Fund Transfer Agents may assist 

the mutual fund in filing the Suspicious Activity Reports.

Mutual Fund Transfer Agents may also assist mutual funds in complying with 

requirements related to the price-dependent nature of mutual fund transaction processing. First, 

Mutual Fund Transfer Agents may be responsible for monitoring, on behalf of the mutual fund,

that intermediaries such as dealers are properly separating orders received from customers before 

NAV is next computed from those received afterwards and are sending them in separate batches 

to the Mutual Fund Transfer Agent.505 As another example, mutual funds are entitled to receive 

 

502 Id.

503 See, e.g., Pozen & Hamacher, supra note 470 (discussing transfer agent verification of investor identity 

information as part of the mutual fund share purchase process); Id. at 352 (“Funds must take steps to avoid 

providing a laundry service for criminals with dirty money. As mentioned earlier, transfer agents verify a 

customer’s identity when they open an account, under what are referred to as the know your customer, or 

KYC rules.”) (emphasis in the original); Practising Law Institute, Mutual Funds and Exchange Traded 

Funds Regulation § 1A:3.1 Money Laundering (Clifford A. Kirsch ed., 3rd ed. 2014) (“Most funds 

accomplish AML compliance through their transfer agents and distributors.”)

504 31 CFR 103.15(a)(1); see Financial Crimes Enforcement Network; Amendment to the Bank Secrecy Act 

Regulations--Requirement That Mutual Funds Report Suspicious Transactions, 68 FR 2716 (Jan. 21, 2003); 

see also Guidance, Frequently Asked Questions, Suspicious Activity Reporting Requirements for Mutual 

Funds, FIN-2006-G013 (Oct. 4, 2006) (authorizing mutual fund to use an agent to file reports but stating 

the “mutual fund remains responsible for assuring compliance with the regulation and must monitor 

performance by the service provider.”).

505 See Compliance Programs of Investment Companies and Investment Advisers, Investment Company Act 

Release No. 26299 (Dec. 17, 2003) (reliance solely on “contractual provisions with transfer agents and 

other intermediaries that obligate those parties to segregate orders received by time of receipt in order to 

prevent “late trading” based on a previously determined price” would be “insufficient to meet the 
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taxpayer identification numbers of beneficial owner customers upon request under shareholder 

information agreements that mutual funds (other than money market mutual funds and mutual 

funds that expressly authorize short-term trading) must enter into pursuant to Investment 

Company Act Rule 22c-2(a)(2) with financial intermediaries who submit orders on behalf of 

beneficial owner customers.506 Mutual Fund Transfer Agents commonly assist the mutual fund’s 

review of this taxpayer identification number and related transaction information in order to 

monitor against trading practices that may dilute the value of the outstanding securities issued by 

the mutual fund.507

4. Broker-Dealer Recordkeeping for Beneficial Owners Who Invest In 

Mutual Funds

As happens in the operating company space, many securities intermediaries such as 

broker-dealers and banks perform recordkeeping and processing services for their customers who 

are beneficial owner investors in mutual funds.508 A key difference is that frequently a mutual 

fund will compensate the intermediary pursuant to an agreement with the intermediary for the 

provision of those services to fund investors, typically based on the number of shareholder 

accounts or a percentage of the net assets of the fund, or some combination thereof. However, 

most operating companies do not compensate intermediaries for servicing their beneficial owner 

 

requirements of the new rule. Funds should . . . also take affirmative steps to . . . obtain[] assurances that 

those policies and procedures are effectively administered.”).

506 Investment Company Act Rule 22c-2(a)(2), 17 CFR 270.22c-2(a)(2). 

507 See id. (authorizing a Mutual Fund Transfer Agent to enter into the shareholder information agreement on 

behalf of the mutual fund with the financial intermediary). 

508 See Section VII.B for a discussion of the transfer and account maintenance-related services performed by 

broker-dealers and banks for their beneficial owner customers and related issues. We note that the 

relationship between fees received by intermediaries for these types of “sub-transfer agent” services and the 

12b-1 fee plan of a mutual fund is beyond the scope of this release.
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customers. The oversight and invoicing for these payments is often delegated to the Mutual 

Fund Transfer Agent,509 who will commonly process and distribute ongoing sub-transfer agency 

fees to intermediaries. 

Because intermediaries are compensated for providing recordkeeping and processing 

services for their customers who are beneficial owner investors in mutual funds, many of the 

issues discussed above in Section V.D.3 are relevant to Mutual Fund Transfer Agents. 

“Networking” of a single investor’s account or position potentially gives Mutual Fund Transfer 

Agents more transparency through to beneficial owners than is available to Operating Company 

Transfer Agents, because the recordkeeping for such accounts is primarily kept on the Mutual 

Fund Transfer Agent’s system. “Networking” is a service provided by NSSC by which Mutual 

Fund Transfer Agents can also exchange general shareholder account data with intermediaries 

such as brokers that provide sub-transfer agency services.510 This service provides for different 

levels of securityholder account networking between mutual funds and securities 

 

509 See generally, ICI, Financial Intermediary Controls and Compliance Assessment Engagements (2015), 

available at https://www.ici.org/pdf/ppr_15_ficca.pdf. The mutual fund industry has developed a 

standardized framework, the Financial Intermediary Controls and Compliance Assessment Engagement 

(FICCA), for intermediary oversight, where fund sponsors are seeking assurances on the effectiveness of 

the intermediary’s control environment. The framework calls for the omnibus account recordkeeper to 

engage an independent accounting firm to assess its internal controls related to specified activities the 

intermediary performs for fund shareholder accounts. FICCA is performed under attestation standards 

issued by the AICPA and the auditor report expresses an opinion on its evaluation of an intermediary’s 

assertion that controls were suitably designed and operating effectively. The framework includes 17 areas 

of focus, including document retention and recordkeeping, transaction processing, shareholder 

communications, privacy protection and anti-money laundering. It is the understanding of the Commission 

that FICCA engagements are voluntary and some intermediary reports may not provide an assessment on 

all 17 areas of focus. 

510 Data communicated via NSSC Networking may include: (i) shareholder elections regarding the settlement 

of cash dividends and capital gains distributions (such as by check or direct deposit), (ii) reinvestment 

elections, (iii) address changes, (iv) the financial adviser associated with the account, and (v) tax reporting 

information. See Mutual Fund Transfer Agent Workbook, supra note 477, at 84.
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intermediaries.511 Networked accounts are in the name of the intermediary on the master 

securityholder file but can represent both individual customers and omnibus accounts. 

Nevertheless, Networking’s advantages are less utilized today as many beneficial owner 

accounts are now held in omnibus accounts that may also be networked. Thus, due in part to the 

increasing prominence of the omnibus account, Mutual Fund Transfer Agents’ ability to lookthrough to beneficial owners has decreased.

The use of breakpoints historically highlights some of the issues faced by Mutual Fund 

Transfer Agents that are associated with recordkeeping and processing services provided by 

intermediaries.512 A 2003 joint report of the staffs of the Commission, NASD and NYSE, found 

that “[t]he dramatic growth in the number of [mutual fund] families, share classes, and, to a 

lesser extent, customer account types, has increased the complexity of applying breakpoints 

appropriately.” 513 The Staff Report also noted that whereas “in the past, broker-dealers dealt 

directly with mutual fund transfer agents and disclosed the customer’s identity to them, the 

increasing prominence of omnibus account arrangements and sub-transfer agency services 

 

511 Intermediary accounts can be networked at three levels (0, 3 and 4), providing different information 

concerning underlying beneficial owners. In Level 3, the intermediary handles all aspects of the customer 

relationship and the customer does not interact with the Mutual Fund Transfer Agent. In Level 4, the 

Mutual Fund Transfer Agent handles all client communications, and customers as well as their 

intermediary may interact with the Mutual Fund Transfer Agent. Level 0 refers to a bank trust networked 

account that functions similar to a Level 3 account, and the term also is used when referencing nonnetworked accounts. 

512 Some mutual funds that charge front-end sales loads will charge lower sales loads for larger investments 

(i.e., “breakpoints). For addition information on breakpoints, see Final Rule: Disclosure of Breakpoint 

Discounts by Mutual Fund, Exchange Act Release No. 49817 (June 7, 2004), 69 FR 33262 (June 14, 2004).

513 Staff Report: Joint SEC/NASD/NYSE Report of Examinations of Broker-Dealers Regarding Discounts on 

Front-End Sales Charges on Mutual Funds (Mar. 2003), available at

https://www.sec.gov/news/studies/breakpointrep.htm.
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provided to these accounts by intermediaries such as brokers had made the tasks related to the 

application of breakpoints more challenging.”514

Finally, the Commission understands that there has been a movement to omnibus subaccounting arrangements over the years for mutual fund shareholders515 and that this movement 

has resulted in a fundamental shift in the roles and responsibilities of traditional shareholder 

servicing and recordkeeping.516 The Commission is examining the issues or concerns that may 

arise in connection with the lack of visibility that issuers and transfer agents acting on their 

behalf may have regarding the records maintained by intermediaries for their customers who are 

beneficial owners of mutual funds that are being serviced through omnibus and sub-accounting 

arrangements. 

5. Discussion and Request for Comment

Given these developments, as well as the proliferation and growth of registered 

investment companies, including open-end funds, closed-end funds, UITs517 and ETFs,518 the 

 

514 Id.; see also infra Section C.4 for additional discussion of Mutual Fund sub-transfer agent issues.

515 See generally, Deloitte Digest on Omnibus Revolution, supra note 459; Deloitte, The Omnibus Revolution; 

managing risk across an increasingly complex service model (2012), available at 

http://www.deloitte.com/view/en_US/us/Industries/Private-Equity-Hedge-Funds-Mutual-Funds-FinancialServices/e89659d4db516310VgnVCM3000001c56f00aRCRD.htm.

516 See generally, PWC Evolution of the Mutual fund Transfer Agent, supra note 461;

PricewaterhouseCoopers, LLP, Evolution of the mutual fund transfer agent: Embracing the challenges and 

opportunities (July 2015), available at http://www.pwc.com/us/en/asset-management/investmentmanagement/publications/mutual-fund-transfer-agent-evolution.html.

517 See supra note 442.

518 The first Commission transfer agent rules were adopted in 1977. See generally, supra Section IV.A. The 

advent of ETFs occurred more than a decade later. For examples of some of the earliest ETFs authorized 

under Commission exemptive orders, see, e.g., SPDR Trust, Series 1, Investment Company Act Release 

No. 18959 (Sept. 17, 1992) (notice), 19055 (Oct. 26, 1992) (order); Diamonds Trust, Investment Company 

Act Release No. 22927 (Dec. 5, 1997) (notice), 22979 (Dec. 30, 1997) (order). For a discussion of key 

characteristics of ETFs, see Request for Comment on Exchange-Traded Products, Exchange Act Release 
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Commission believes it is appropriate to examine the regulation of transfer agents who provide 

services to registered investment companies. 

In particular, the Commission seeks comment regarding the regulation of transfer agents 

to registered investment companies based on the unique trading, market, asset class, and other 

relevant characteristics of the registered investment companies they service. Some of the issues 

posed by these unique characteristics of these registered investment companies are illustrated by 

the potentially different treatment of UITs and closed-end funds with respect to the Rule 17Ad4(a) exemptions, despite the many similarities that have existed historically among the secondary 

market trading characteristics of UITs and closed-end funds. Closed-end funds typically trade in 

a secondary market and often list on a national securities exchange for trading. By definition 

under Section 5 of the Investment Company Act, the securities of closed-end funds are not 

redeemable (i.e., the investor does not have a right to require the fund to redeem the investor’s 

shares in exchange for a proportionate share of the fund’s underlying asset or cash equivalent 

thereof).519 As a result, transfer agents servicing closed-end funds do not qualify for the Rule 

17Ad-4(a) exemption, with respect to closed-end funds.520 In contrast, transfer agents servicing 

UITs qualify for the exemption because UIT units are redeemable.521 Yet, although UIT units 

 

No. 75165 (June 12, 2015), 80 FR 34729 (June 17, 2015); Exchange-Traded Funds, Investment Company 

Act Release No. 28193 (March 11, 2008), 73 FR 14618 (March 18, 2008).

519 While a closed-end fund investor may not have the right to require the fund to redeem the investor’s shares, 

in some cases, a closed-end fund may elect to purchase shares from its investors if they wish to sell their 

shares. See also Investment Company Act Rules 23c-1 through 23c-3, 17 CFR 270.23c-1 through 23c-3.

520 See 17Ad-1-7 Proposing Release, supra note 165, at n.14 (“The turnaround rules do apply to registered 

transfer agents performing transfer agent functions for securities issued by closed-end investment 

companies.”)

521 Id.
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are redeemable, because UITs are static trusts, redemptions of the UIT would require the UIT to 

dilute the corpus of the trust in order to meet redemption requests (whether paid out by the UIT 

in cash or met by distributions by the UIT of in-kind assets of the UIT). Therefore, just like 

closed-end funds, in order to provide liquidity to selling shareholders, historically UITs 

commonly have been traded in a secondary market, typically made up of broker-dealers, but 

UITs typically do not list their shares on a national securities exchange for trading as closed-end 

funds often do.522 Thus, UITs and closed-end funds are treated differently for purposes of Rule 

17Ad-4, despite historically having similar trading characteristics.523 

The Commission also seeks comment with respect to the Rule 17Ad-4(a) exemptions. As 

discussed above, although Mutual Fund Transfer Agents provide many of the same 

recordkeeping, transfer, account maintenance, and related services that Operating Company 

Transfer Agents provide, under Rule 17Ad-4(a) they are exempt from some of the turnaround, 

processing, performance, and recordkeeping requirements that make up the foundation of the 

 

522 See Thomas Harman, Emerging Alternatives to Mutual Funds: Unit Investment Trusts and Other Fixed 

Portfolio Investment Vehicles, 1987 Duke L.J. 1045, 1046 (1987), available at

http://scholarship.law.duke.edu/dlj/vol36/iss6/4/; Gould and Lins, Unit Investment Trusts: Structure and 

Regulation under the Federal Securities Laws, 43 Bus. Law. 1177, 1185 (Aug. 1988); Form N-7 for 

Registration of Unit Investment Trusts under the Securities Act of 1933 and the Investment Company Act 

of 1940, Investment Company Act Release No. 15612 at text following n.1 (Mar. 9, 1987), 52 FR 8268 

(Mar. 17, 1987); and SEC, Office of Investor Education and Advocacy, Unit Investment Trusts (UITs), 

available at http://www.sec.gov/answers/uit.htm.

523 With respect to UITs that are not ETFs and that do not serve as separate account vehicles that are used to 

fund variable annuity and variable life insurance products, broker-dealers have historically maintained a 

secondary market in UIT units. At present, based on Commission staff analysis of data as of December 

2014, the Commission understands that approximately 75% of the assets held in UITs serve as separate 

account vehicles that are used to fund variable annuity and variable life insurance products, and the 

sponsors of these UITs do not typically maintain a secondary market in UIT units. See Open-End Fund 

Liquidity Risk Management Programs; Swing Pricing; Re-Opening of Comment Period for Investment 

Company Reporting Modernization Release, Investment Company Act Release No. 31835, 51-52 (Sept. 22, 

2015), 80 FR 62273, 62289 (Oct. 15, 2015).
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transfer agent rules.524 One of the primary justifications for the Rule 17Ad-4(a) exemption was 

that at the time of adoption most equity securities at that time were issued in certificated form, 

while most mutual fund shares were uncertificated.525 Thus, the Commission viewed the 

“redemption of fund shares” as being “significantly different from the transfer of ownership of 

stocks and bonds on the issuer’s records.”526 However, today most equity securities are either 

immobilized at DTC or completely dematerialized and issued in book-entry form, potentially 

making the processing of securities issued by mutual funds and equity securities issued by 

operating companies more alike than different and raising the question of whether the 

Commission should consider amending or eliminating the Rule 17Ad-4 exemption. 

Based on these and the other issues and developments discussed in this section and 

throughout this release, the Commission believes it is appropriate to consider whether new or 

amended rules governing transfer agents’ services and activities with respect to mutual funds and 

other registered investment companies could be appropriate. Accordingly, the Commission 

seeks comment on the following:

101. What are the similarities and differences among transfer agents that service equity 

securities, debt securities, and registered investment company securities? Please 

explain. 

 

524 As noted above, Rule 17Ad-4(a) creates an exemption from Rules 17Ad-2, 17Ad-3, and 17Ad-6(a)(1)-(7) 

and (11) for interests in limited partnerships, DRIPs, and redeemable securities issued by investment 

companies registered under Section 8 of the Investment Company Act. See supra Section IV.A.2 for 

additional information regarding Rule 17Ad-4. 

525 See supra Section IV.A.2.

526 Rule 17Ad-1 through 17Ad-7 Adopting Release, supra note 145, at 32408; see also id. at n.13 (“[t]he 

amount of certificated fund shares is relatively small, and the amount of transfer agent activity in 

connection with transferring ownership of certificated shares represents a very small part of a transfer 

agent’s activity with regard to an open-end investment company.”).
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102. Do transfer agents face different risks and challenges depending on the industry 

segment or asset class they service? Does the level of complexity associated with 

transaction processing by Mutual Fund Transfer Agents create risks or challenges 

the Commission should consider addressing? Why or why not? Please explain. 

103. Should the Commission address specific issues related to Mutual Fund Transfer 

Agents and transfer agents that service other registered investment companies? 

Should the Commission, in regulating transfer agents to registered investment 

companies, take into account the trading, market, asset class, or other 

characteristics of the securities or issuers being serviced? What other factors, if 

any, should be considered and why? Alternatively, should the Commission 

regulate all transfer agents uniformly, regardless of the industry segment or asset 

class they service? Why or why not? What data should the Commission consider

in making that determination? Please explain. 

104. Should the Commission impose additional recordkeeping and disaster recovery 

requirements for Mutual Fund Transfer Agents? Why or why not?

105. Should the Commission require that transfer agents provide more detailed 

information on Form TA-2 about the type of issuers they are servicing and the 

types of work they are performing for those issuers? Why or why not? For 

example, should Form TA-2 include information regarding whether a transfer 

agent is servicing investment companies or pension plans? Why or why not? 

Would this information be helpful to issuers who seek specific skills or 

experience from their transfer agent? Should Form TA-2 require the disclosure of 

the name of each issuer serviced during the reporting period? Why or why not? 

What would be the benefits, costs, or burdens associated with any such 

requirements? Are there already freely available sources for this information? 

Please provide empirical data, if any. 

106. As noted, transfer agent services for interests in limited partnerships, DRIPS, and 

redeemable securities of registered investment companies are exempt from certain 

turnaround rules under Rule 17Ad-4(a). In light of the expanded role of transfer 

agents in these areas, should the Commission eliminate these exemptions? If so, 

what costs, burdens, or benefits would accrue to investors, issuers, or the transfer 

agent industry? If these exemptions are not eliminated, should the Commission 

add other book-entry forms of ownership to the list of exemptions, including 

direct registration system positions, direct purchase plan positions, and employee 

purchase plans? Why or why not?

107. Are limited partnerships traded today in greater volumes than they were in 1977? 

Please provide empirical data. If so, do commenters believe the Commission 

should consider this as a potential basis for eliminating the exemption for transfer 

agents to limited partnerships in Rule 17Ad-4(a)? Why or why not? 
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108. In light of increased dematerialization, do commenters believe transfer agent 

processing of DRIP transactions today is largely similar to the processing of 

equity and debt securities? Why or why not? If so, do commenters believe the 

Commission should consider this as a potential basis for eliminating the 

exemption for transfer agents to DRIPs in Rule 17Ad-4(a)? Why or why not? 

109. Transfer agents that service UITs are currently exempt under Rule 17Ad-4(a), but 

transfer agents that service closed-end funds are not. Should the Commission 

continue this distinction? Should the Commission apply transfer agent rules to 

transfer agents that service UITs in the same manner as the rules apply to transfer 

agents that service closed-end funds on the basis of historical similarities in the 

secondary market trading of both types of funds? Why or why not? Please 

explain. 

110. Should the Commission amend the current transfer agent rules to explicitly 

address transfer agents for ETFs? Why or why not? How do transfer agent 

functions in connection with ETFs differ, if at all, from services transfer agents 

provide to other types of investment companies? Are there any particular issues 

unique to transfer agent service of ETFs that raise risks not present with respect to 

other types of investment companies? Please explain. If Rule 17Ad-4(a) is 

retained by the Commission in some form and is not proposed to be eliminated, 

should the Commission amend Rule 17Ad-4(a) to specify explicitly the 

applicability of its exemption to transfer agents to ETFs? If so, should transfer 

agents to ETFs be able to avail themselves of the exemption or should the 

exemption not apply to transfer agents to ETFs similar to the way in which the 

exemption today does not apply to transfer agents to closed-end funds, which in 

some cases are traded on national securities exchanges as are ETFs? Why or why 

not?

111. How are Mutual Fund Transfer Agents compensated today? Do any aspects of 

the structure or terms of their compensation raise regulatory concerns? Do 

Mutual Fund Transfer Agent fees based upon the fund’s net assets create any 

conflicts of interest? Why or why not? If so, are there alternative fee structures 

that would not create conflicts of interest? Do Mutual Fund Transfer Agents 

provide fee rebates to issuers and, if so, do these raise any issues of regulatory 

concern? Do the internal and hybrid transfer agent models discussed above raise 

any special regulatory concerns? Why or why not? Please explain.

112. Should the Commission adjust its regulatory oversight of Mutual Fund Transfer 

Agents and, if so, how? Should any aspects of the Commission’s regulatory 

regime for registered clearing agencies, including those that act as central 

securities depositories, apply to Mutual Fund Transfer Agents? Why or why not? 

113. Given the increasing volume of transactions and activities facilitated through 

NSCC as the central clearance and settlement utility for mutual funds and 

intermediaries, what issues or concerns, if any, should the Commission consider 
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with respect to the various activities conducted through NSCC for mutual fund 

investors? Please describe.

114. How often do Mutual Fund Transfer Agents serve as fund administrators for the 

same mutual fund? Does this dual role create conflicts of interest for either the 

mutual fund or the Mutual Fund Transfer Agent? Does this dual role raise other 

concerns? If so, please describe.

115. What ancillary information or systems do Mutual Fund Transfer Agents or 

intermediaries rely on to ensure accurate processing and recordkeeping of mutual 

fund shares (e.g., master security/CUSIP databases, systems for tracking the age 

of fund shares for fee processing, cost basis systems for tax reporting)? Should 

the recordkeeping rules be modified or expanded to address such records? Please 

explain. 

116. Transfer agents currently engage in the processing of “as of” transactions, or 

transactions which correct errors in the purchase or sale of mutual fund shares. 

What, if anything, differentiates, the “as of” transactions from an initial purchase 

or sale? Should the Commission specifically address “as of” transactions in 

transfer agent rules? Why or why not? Should the Commission adopt rules that 

govern which party, the mutual fund issuer or the Mutual Fund Transfer Agent,

loses or retains profits resulting from processing errors when these errors are 

corrected by later “as of” transactions? 

117. Mutual fund transfer agents facilitate the delivery of critical information (e.g., 

daily fund NAVs, dividend accrual information) to intermediaries for overnight 

batch processing of beneficial owner transactions. What issues or concerns, if 

any, should the Commission consider with respect to the timely delivery of such 

information, and the impacts of potential processing delays and downstream 

effects, including to investors? Please describe. 

118. Should the Commission require that the number of “as of” transactions be 

reported by Mutual Fund Transfer Agents on Form TA-2? Why or why not? Are 

greater numbers of “as of” transactions indicative of potential processing 

problems at a Mutual Fund Transfer Agent, such as a turnaround backlog or 

problems with accuracy? Why or why not? Do greater numbers of “as of” 

transactions indicate potentially risky mutual fund trading practices that may 

dilute the interests of long-term investors in the mutual fund? Why or why not? 

119. Does mutual funds’ use of intermediaries who act as sub-transfer agents introduce 

new or additional risks to the prompt and accurate settlement of securities 

transactions? If so, what are those risks, should the Commission consider 

addressing those risks, and if so, how? Please explain. 

120. Should the Commission propose rules governing how Mutual Fund Transfer 

Agents oversee sub-transfer agents to mutual funds? Why or why not? If so, 
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what rules should the Commission consider? Why, and what would be the 

benefits, costs, or other consequences of such rules? Please explain. 

121. What oversight functions, if any, do Mutual Fund Transfer Agents typically 

perform for intermediaries performing sub-transfer agent or sub-accounting 

services to beneficial owners of mutual fund shares? What are the types of initial 

versus ongoing due diligence performed? What types of obstacles do Mutual 

Fund Transfer Agents face in performing the oversight function? 

122. What problems, if any, are created by transfer agents’ lack of visibility into the 

identity of beneficial owners and products serviced by intermediaries acting as 

sub-transfer agents? Please describe. If appropriate, could these issues be 

addressed solely by the Commission through revisions to the rules governing 

transfer agents? Would other regulatory changes be necessary, such as changes to 

the rules under the Investment Company Act or rules for broker-dealers under the 

1934 Act (and 1933 Act)? Would other regulators also need to enact rule changes 

(for example, banking regulators and the Department of Labor for retirement plan 

recordkeepers) to assist with transparency?

D. Crowdfunding

Pursuant to the Jumpstart Our Business Startups (JOBS) Act (“JOBS Act”), the 

Commission adopted Regulation Crowdfunding on October 30, 2015.

527 These rules permit an 

issuer to raise up to $1,000,000 in a crowdfunding offering that is not registered under the 

Securities Act, subject to, among other things, certain caps on amounts individual investors may 

invest.528 Crowdfunding offerings are offerings that are conducted primarily over the internet 

 

527 See Crowdfunding, Securities Act Release No. 9974 (Oct. 30, 2015), 80 FR 71388 (Nov. 16, 2015) 

(“Crowdfunding Adopting Release”). In addition, pursuant to Section 401 of the JOBS Act, the 

Commission adopted amendments to Regulation A in March 2015. These amendments included a 

conditional exemption for securities issued in a Tier 2 offering under Regulation A from the mandatory 

registration requirements of Section 12(g) of the Exchange Act. One of the conditions of the exemption is 

that the issuer “[h]as engaged a transfer agent registered pursuant to Section 17A(c) of the Act to perform 

the function of a transfer agent with respect to...securities” issued in a Tier 2 offering pursuant to 

Regulation A. Amendments for Small and Additional Issues Exemptions under the Securities Act 

(Regulation A), Exchange Act Release No. 74578 14, 249, 285 n. 972 (Mar. 25, 2015), 80 FR 21805, 

21809, 21820, 21867, 21879 n. 972 (Apr. 20, 2015), available at http://www.sec.gov/rules/final/2015/33-

9741.pdf.; Exchange Act Rule 12g5-1(a)(7)(iii),17 CFR 240.12g5-1(a)(7)(iii). 

528 See Regulation Crowdfunding Rule 100(a); Crowdfunding Adopting Release, supra note 527, at 71389.
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through registered brokers or a new class of intermediaries, called “funding portals.” The JOBS 

Act and Regulation Crowdfunding contain provisions that relate directly to transfer agents.

First, Regulation Crowdfunding created an exemption from the record holder count under 

Section 12(g) of the Exchange Act provided that certain conditions are met. One of these 

conditions is that “the issuer... has engaged the services of a transfer agent registered with the 

Commission pursuant to Section 17A of the Exchange Act.”529 

Second, under the JOBS Act and new Rule 501 of Regulation Crowdfunding, securities 

issued in crowdfunding offerings are subject to restrictions on resale for a period of one year, 

with the exception that they may be resold to other investors under specific conditions prior to 

the expiration of the holding period.530 Regulation Crowdfunding does not mandate the use of a 

restrictive legend on crowdfunding securities certificates or book-entry security positions, but it 

does require the placement of a legend in the offering statement used in the offering.531 Because 

of their experience in handling restricted securities, transfer agents retained by issuers in

connection with crowdfunding offerings may be asked to track securities that were issued in 

 

529 The other conditions are that the issuer is current in its ongoing annual reports required pursuant to Rule 

202 of Regulation Crowdfunding and has total assets as of the end of its last fiscal year not in excess of $25 

million. See Crowdfunding Adopting Release, supra note 527, at 330, 662. 

530 Securities Act Section 4A(e) provides that “Securities issued pursuant to a transaction described in section 

4(6) may not be transferred by the purchaser of such securities during the 1-year period beginning on the 

date of purchase, unless such securities are transferred” under certain specified conditions. Rule 501(a) of 

Regulation Crowdfunding provides “Securities issued in a transaction exempt from registration pursuant to 

section 4(a)(6) of the Securities Act . . . and in accordance with section 4A of the Securities Act . . . and this 

part may not be transferred by any purchaser of such securities during the one-year period beginning when 

the securities were issued in a transaction exempt from registration pursuant to section 4(a)(6) of the 

Securities Act . . . unless such securities are transferred” under certain specified conditions, including that 

the transfer is to the original issuer, to an accredited investor, is part of a registered offering, or to a family 

member. 

531 See Regulation Crowdfunding, Form C, Item 2, General Instruction III; see also Crowdfunding Adopting 

Release, supra note 527, at 68-69.
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crowdfunding offerings and handle issues related to the restrictions on transfer and exemptions 

thereto.

Third, Rule 301(b) of Regulation Crowdfunding requires intermediaries to have a 

“reasonable basis” for believing that an issuer has established means to keep accurate records of 

the holders of the securities it would offer and sell through the intermediary’s platform.532 

Intermediaries may rely on the representations of the issuer concerning its means of 

recordkeeping unless the intermediary has reason to question the reliability of those 

representations.

533 Rule 301(b), however, also provides a safe harbor for compliance for those 

issuers that use a registered transfer agent.534 

As a result of these new provisions, transfer agents are likely to be involved in at least 

some crowdfunding offerings. Accordingly, the Commission seeks comment on the following:

123. What services, if any, do commenters anticipate transfer agents providing for 

crowdfunding issuers? How do commenters anticipate transfer agents will 

comply with their recordkeeping, safeguarding, and other requirements in the 

context of crowdfunding securities? Does the entry of transfer agents into the 

crowdfunding space pose new or additional risks for the prompt and accurate 

settlement of securities transactions? What are these risks, should the 

Commission address them, and, if so, how?

124. Transfer agents have traditionally assessed fees on a per shareholder basis. Do

commenters believe transfer agents are likely to impose a per shareholder fee in 

connection with crowdfunding issuances? If so, is a per-shareholder fee 

appropriate? If not, what other kinds of fees are likely to be charged, and would 

they be appropriate?

 

532 Regulation Crowdfunding Rule 301(b).

533 Id.

534 Id. (“An intermediary will be deemed to have satisfied this requirement if the issuer has engaged the 

services of a transfer agent that is registered under Section 17A of the Exchange Act . . .”)
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E. Administration of Issuer Plans

Many transfer agents provide transfer, recordkeeping, administrative, and other services 

related to certain types of issuer-sponsored plans that provide incentives to the issuer or 

securityholders in the form of reduced fees and commissions, as well as other benefits. These 

plans include DRIPs, DSPPs,

535 employee stock purchase plans (“ESPPs”),536 equity-based 

incentive compensation plans,537 odd lot programs,538 and subscription rights programs

(collectively, “Issuer Plans”).539 Many transfer agents also help administer employer-sponsored 

retirement plans (“Retirement Plans).” The specific services provided will vary depending on 

the nature of the plan or mutual fund and the agreement between the issuer and agent, but many 

are similar and can be thought of broadly as “Plan Administration”540 services. Depending on 

the transfer agent and the specific services provided, some of these activities may raise brokerdealer registration issues. This section discusses these and other issues associated with transfer 

 

535 DSPPs allow individuals to purchase stock directly from the issuer or its transfer agent, again without going 

through a broker. Unlike DRIPs, investors do not need to be existing securityholders to participate in 

DSPPs. 

536 ESPPs allow employees to invest in their employer’s securities by purchasing shares directly from the 

employer (issuer) or its transfer agent, frequently at a discount to the market price. 

537 Equity-based incentive compensation plans for example include plans regarding stock options, restricted 

stock units, and stock appreciation rights.

538 Odd-lot program are used by issuers to purchase shares of their own stock back from owners of less than 

100 shares (a 100 share block is considered to be a “round lot”), which may reduce the issuer’s transfer 

agent and other fees by reducing the number of registered stockholders and/or allow small investors to sell 

their stock without a broker. The Commission staff has provided no-action relief to a transfer agent in

connection with its participation in an odd-lot program and charging of fees to investors (that were 

estimated to be lower than standard broker commissions) without requiring registration of the transfer agent 

as a broker-dealer. See American Transtech Inc., SEC Staff No-Action Letter (Sept. 22, 1985).

539 Subscription rights programs allow existing stockholders to avoid dilution of their percentage ownership by 

purchasing enough shares in the issuance to retain at least the same level of percentage ownership. 

540 “Plan Administration” and “Administration,” as used in this release are not terms of art with a fixed 

definition. We use them broadly as simplified shorthand to refer to some of the services discussed herein. 
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agents’ Plan Administration activities and seeks comment regarding possible regulatory actions 

regarding those issues. 

1. Third Party Administrators

The majority of Plan Administrators that provide services for Retirement Plans (and some 

Issuer Plans and mutual funds) do not perform statutory transfer agent functions,541 and therefore 

may not be required to register as a transfer agent with the Commission or other ARA. Because 

they are generally hired by the Retirement Plan or other plans rather than the issuer, in this 

context, Plan Administrators may be referred to as Third-Party Administrators (“TPAs”).542 It is 

the Commission staff’s understanding that the majority of TPAs are not registered as transfer 

agents, although some do so voluntarily. 

One of the TPA’s main responsibilities is acting as an intermediary between benefit plan 

participants and the plan. For example, TPAs provide various services when enrolling new 

employees in a company’s benefit plan, including recording and processing their enrollment and 

collecting information about their funding and investing preferences (e.g., fund allocations). 

TPAs use this information to generate payroll deduction instructions and transmit these 

instructions to the participant’s payroll or human resources department for processing. 

TPAs continue to act as intermediaries between the benefit plan participants and plans 

after participants enroll in the plan. For example, if participants wish to transfer or reallocate 

mutual funds within their plan, they submit their request to the TPA, which will process and 

 

541 See supra note 139 and Section IV.A for a description of the specific activities which require registration as 

a transfer agent under the Exchange Act. 

542 The term “TPA” is used here to refer generally to a broad category of “administrators” who provide the 

types of services described herein.
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record these requests and provide the transactional details to the plan trustee or investment 

manager. Similarly, when participants request a payment, the TPA may send the transaction 

details to the NSCC, plan trustee, and investment manager, and provide payment instructions to 

the mutual fund and Mutual Fund Transfer Agent. In addition to processing transactions, TPAs 

may provide participants with customer service support, activity statements, and other 

communications. 

TPAs may also provide sub-transfer agent services for plans that offer, as investment 

options of the plan, investment in the shares of mutual funds.

543 In this arrangement, TPAs take 

orders from investors and perform record consolidation services as sub-transfer agents to the 

plan. Instead of submitting to mutual funds (and their Mutual Fund Transfer Agents) hundreds 

or thousands of individual purchase and redemption orders each day in the shares of those 

mutual funds that have been submitted to the plan (and its TPA) by individual plan participants, 

TPAs may aggregate and, in some instances, net orders on behalf of the plan to be submitted to a 

mutual fund.

544 Orders are aggregated by adding all of the purchase and redemption orders for a 

particular mutual fund and submitting the total purchase order and the total redemption order to 

the mutual fund. 

Once aggregated, TPAs may go a step further and create a single net order by offsetting 

the purchase and redemption orders against each other. These services allow TPAs to 

complement the administrative and recordkeeping services they already provide to plans and 

 

543 For additional discussion of sub-transfer agent services, see supra Section VII.B

544 See, e.g., comment letters to Investment Company Act Release No. 26288 (Dec. 11, 2003), 68 FR 70388, 

70388-89 (Dec. 17, 2003), available at http://www.sec.gov/rules/proposed/s72703.shtml.
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possibly earn additional fees from mutual fund complexes. They also reduce the amount of 

transactions that mutual fund complexes (and their Mutual Fund Transfer Agents) need to 

process. Under this arrangement, the mutual fund often does not know the identity of the plan 

participants since TPAs, not the mutual funds, are taking the orders directly from the plan 

participants and submitting orders to the mutual funds on behalf of and generally in the name of 

the plan.545 In these situations, the Mutual Fund Transfer Agent would know only the plan, 

which is the legal owner of the shares of the mutual fund held by the plan for the benefit of its 

participants.

2. Issuer Plans 

Issuers commonly appoint Plan Administrators to administer their Issuer Plans. 

Depending on the type of security being serviced and the scope of the activities performed, Plan 

Administrators may be required to register with the Commission or other ARA as a transfer 

agent.546 For simplicity and because of the pre-existing relationship, issuers may simply hire 

their existing transfer agent. 

Plan Administrators perform primarily four tasks for these plans. First, they handle 

communications with investors, including their initial plan registration,547 often by operating a 

website that allows investors to sign up for and manage their account. 

 

545 See supra note 506 and accompanying text for a discussion of Investment Company Act Rule 22c-2, the 

provision of taxpayer identification numbers to assist mutual funds in complying with rules related to 

“forward pricing,” and transfer agent services that assist mutual funds in complying with Rule 22c-2.

546 For additional discussion of transfer agent registration requirements, see supra Section IV.A.

547 Many DRIPs require investors to own at least one share registered in their name (as opposed to being held 

in street name) before they will be allowed to participate in the DRIP. 
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Second, they purchase company shares for the plan,548 typically on the secondary market, 

although purchases can also be made through negotiated transactions or from the company itself, 

for example by using authorized but unissued shares of common stock or shares held in the 

company’s treasury.549 Some issuers offer investors who participate in their plans discounts on 

the share price, but there is wide variation in how this is offered.

Third, Plan Administrators maintain custody of purchased shares on the participants’ 

behalf,550 with the purchased shares typically being registered in the name of the transfer agent’s 

nominee. This could lead to plan participants holding the issuer’s shares in two places: their 

bank or brokerage firm for the original registered shares, and the Plan Administrator for shares 

purchased through a plan. To address this, many Plan Administrators allow Plan participants to 

deposit their original registered shares into the participant’s DRIP account for safekeeping at no 

charge or for a modest fee. Once deposited with the transfer agent, the shares are treated the 

same way as the other shares in the participant’s account.

Finally, Plan Administrators maintain Plan records and send regular account statements 

and other communications to plan participants. These typically include quarterly account 

statements and transactional statements after each cash investment, transfer, deposit, withdrawal, 

 

548 When investors join a plan, they are typically required to sign a document authorizing the agent to make 

purchases on their behalf.

549 Plan Administrators typically purchase shares on or around the dividend payment date, but they may spread 

out large purchases made on the secondary market over a longer period of time to avoid affecting the share 

price. When purchasing shares on the secondary markets, the share price is generally determined by 

averaging the price of all shares purchased for that investment period; when purchased directly from the 

company, it is based on an average of the high and low or the closing price for the stock as reported by a 

specified source. 

550 Paper certificates for shares of the company’s common stock purchased under the plans will generally not 

be issued unless requested by the participant. Paper certificates are also issued when a participant no 

longer wants to participate in the plan.
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or sale. These statements generally show cash dividends and optional cash payments received, 

the number of shares purchased, the purchase price for the shares, the total number of shares held 

for the participant, and an accumulation of the transactions for the calendar year to date. In 

addition, Plan Administrators send plan participants the same communications that are sent to 

every other securityholder of the company’s common stock, including the company’s annual 

report, annual meeting notices, proxy statements, and income tax information for reporting 

dividends paid by the company.

3. Potential Broker-Dealer Registration Issues

As described above, Plan Administrators, TPAs, and Mutual Fund Transfer Agents all 

provide some level of transaction execution and order routing services. The specific services 

may vary depending on the plan or firm, but in general, administrators that provide transaction 

execution services will handle customer funds and securities and may provide some level of 

netting, which is the process of offsetting expected deliveries and payments against expected 

receipts in order to reduce the amount of cash and securities to be moved. For example, some 

administrators for employer-sponsored retirement plans offset purchase and sale transactions in 

the same target mutual fund by different participants in the plan and submit a net order to the 

transfer agent of the mutual fund. Netting is a function commonly performed by clearing 

agencies and may also be performed by broker-dealers for customers holding in street name, but 

is not among the core functions enumerated in Exchange Act Section 3(a)(25) performed by 

registered transfer agents. Hence, netting and other execution services may not themselves 

implicate transfer agent requirements, but nonetheless may trigger broker-dealer regulatory 

requirements.
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The Exchange Act defines a “broker” as “any person engaged in the business of effecting 

transactions in securities for the account of others”551 and requires non-exempt brokers to 

register with the Commission.552 “Effecting securities transactions” includes, among other 

things, identifying potential purchasers of securities, soliciting securities transactions, routing or 

matching orders, handling customer funds or securities, and preparing and sending transaction 

confirmations (other than on behalf of a broker-dealer that executes the trades).553 Receiving 

transaction-based compensation may also indicate that a person is effecting securities 

transactions for the account of other.554 

The Commission has brought enforcement actions against transfer agents operating as 

broker-dealers without registering as such with the Commission. For example, the Commission 

found that a transfer agent was acting as an unregistered broker-dealer in violation of Exchange 

Act Section 15(a) when it, among other things: opened accounts for individual retirement 

account (“IRA”) customers; established an interest bearing depository account to receive IRA 

customer monies; had a power of attorney to withdraw, deposit and transfer IRA customer funds 

held by custodial banks, and to purchase assets in the name of the custodian; charged IRA 

customers a transaction fee when IRA customers made a purchase or sale of securities through a 

 

551 Exchange Act Section 3(a)(4)(A), 15 U.S.C. 78c(a)(4)(A). 

552 Exchange Act Section 15(a)(1), 15 U.S.C. 78o(a)(1). Exchange Act Section 3(a)(4)(B), 15 U.S.C. 

78c(a)(4)(B), provides an exception to the definition of “broker” for certain bank activities. 

553 Definition of Terms in and Specific Exemptions for Banks, Savings Associations, and Savings Banks 

Under Sections 3(a)(4) and 3(a)(5) of the Securities Exchange Act of 1934, Exchange Act Release No. 

44921, 66 FR 27760, 2772-3 (May 18, 2001). 

554 See, e.g., SEC v. Margolin, 1992 WL 279735, at *5 (S.D.N.Y. Sept. 30, 1992) (ruling that Commission had 

demonstrated a substantial likelihood of success on the merits of its claim that a person was acting as an 

unregistered broker where the defendant “provided clearing services” for many transactions, “receiv[ed] 

transaction-based compensation, advertis[ed] for clients, and possess[ed] client funds and securities.”)
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broker-dealer or issuer; prepared periodic account statements for IRA customers; and physically 

held certain IRA customers’ securities in its office vault.555 Furthermore, a transfer agent that 

effects securities transactions for investors in connection with administering certain types of 

Issuer Plans may be engaging in broker activity.556

The Commission staff has stated its view that it will not recommend enforcement action 

where a TPA performs some “clerical and ministerial” activities without registering as a broker, 

subject to the conditions that, among things, the TPA refrain from netting or matching orders.557 

This guidance is consistent with long-standing views on what constitutes broker activity.558 The 

Commission also notes that its staff has taken the position in connection with no-action relief 

that, depending on the facts and circumstances, the performance of some or all of the 

administrative activities discussed in this section are also performed by entities that have 

registered with the Commission as brokers for such purposes.

559 Transfer agents that solicit 

 

555 In the Matter of Bankers Pension Services, Inc., Exchange Act Release. No. 37567 (Aug. 14, 1996) (settled 

action). See also In the Matter of Transcorp Pension Services, Inc., Exchange Act Release No. 37278 (Jun. 

4, 1996) (finding a transfer agent acted an unregistered broker-dealer for engaging in similar conduct). 

556 In the Matter of CIBC Mellon Trust Company, Exchange Act Release No. 51291 (Mar. 2, 2005); In the 

Matter of Computershare Trust Company of Canada, Exchange Act Release No. 53668 (Apr. 18, 2006). 

557 See Universal Pensions, Inc., SEC Staff No-Action Letter 25 (Jan. 30, 1998) (applicant letter noting that 

“the SEC staff has previously agreed that broker registration is not required for persons who perform 

‘clerical and ministerial’ services similar to services provided by the TPA.”); see also Urratia, Carlos M., 

SEC Staff No-Action Letter (Aug. 27, 1980); Investment Company Institute, SEC Staff No-Action Letter 

(June 13, 1973); Applied Financial Systems, SEC Staff No-Action Letter (Sept. 25, 1971); Dreyfus Group 

Equity Fund, SEC Staff No-Action Letter (June 26, 1971) (“No Action Letters”).

558 See generally, Louis Loss, Joel Seligman, and Troy Paredes, Securities Regulation, § 8(A)(3) (2007); 

David A. Lipton, Broker-Dealer Regulation, Vol. 15, § 1:6 (2006). 

559 See, e.g., No-Action Letters, supra note 557 (regarding condition that the recipients of the letters refrain 

from executing orders). 
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purchase and sale orders, accept orders directly from investors, advertise services directly to 

investors, and make investment recommendations, also raise broker-dealer registration issues.560

4. Discussion and Request for Comment

The Commission is generally requesting comment on whether new rules may be 

appropriate to bring greater clarity, consistency, and regulatory certainty to Plan Administration 

and similar activities by entities registered with the Commission solely as transfer agents as well 

as by entities that may not be registered with the Commission in any capacity.561 Specifically, 

the Commission requests comment on the following:

125. Exchange Act Rule 17Ad-9(m) describes various transfer agent functions that are 

broader than the five statutory functions defined in Exchange Act Section 

3(a)(25). Likewise, as discussed in this and other sections, modern transfer agents 

perform a wide array of services and functions that do not fall within the confines 

of Section 3(a)(25) and are not otherwise identified or contemplated in the 

existing transfer agent rules. Should the Commission update the transfer agent 

rules to address additional transfer agent services and functions that do not fall 

within the confines of Section 3(a)(25)? Why or why not? 

126. Should the Commission impose supervisory obligations on entities engaged in 

transfer agent activities, such as transfer agents and plan administrators, such as 

requiring that employees be properly trained, comply with continuing education 

requirements, and adhere to regulations and company policies? Why or why not?

127. Definitions in Rules 17Ad-1 and 17Ad-9 do not explicitly apply to all types of 

transactions and functions related to Issuer Plans, investment company securities, 

 

560 See, e.g., SEC v. Deyon, 977 F. Supp. 510 (D. Me. Aug. 27, 1997) (two unregistered defendants violated 

Section 15(a) of the Exchange Act by, among other things, soliciting investors by phone and in person); 

SEC v. Century Inv. Transfer Corp., Fed. Sec. L. Rep. (CCH) 93,232 (S.D.N.Y. Oct. 5, 1971) (defendant 

was engaged in the broker-dealer business by, among other things, advertising in the Wall Street Journal to 

solicit customers); SEC v. Corporate Relations Group, Inc., 2003 WL 25570113 (M.D. Fla. Mar. 28, 2003) 

(defendant acted as an unregistered broker when it actively sought investors, recommended securities to 

investors through registered representatives, and provided its broker relations executives with transactionbased compensation for stock sales).

561 As noted, depending on the type of securities being administered and the scope of administration services 

being performed, an entity may or may not be required to register with the Commission in the capacity of a 

transfer agent and/or a broker-dealer. 
Page 199 of 208

restricted securities, and corporate actions, or to all transactions relating to bookentry activity and DRS transactions. For example, the rule does not specify that

“credit” and “debit” include Issuer Plan transactions and book-entry accounts as 

well as investment company securities transactions. Does the lack of specificity

cause difficulties in providing services relating to those areas not specifically 

enumerated? Why or why not?

128. Does Rule 17Ad-2 create uncertainty concerning the applicability of the rule to 

activities related to Issuer Plans, investment company securities, restricted 

securities, and corporate actions? If there is such uncertainty, how does it impact 

transfer agents’ functionality? Are issuers concerned about impacts on service 

levels? If so, please describe.

129. The recordkeeping requirements in Rule 17Ad-6 do not specifically include 

activities associated with investment company securities, Issuer Plans, DRS 

transactions, paying agent activities, or corporate actions. Are transfer agents 

applying the rule’s recordkeeping requirements to these activities? If not, what 

would be the additional cost, benefits and/or burdens, if any, in doing so? Please 

describe.

130. Rule 17Ad-10 does not specifically address activities performed by many transfer 

agents, such as Plan Administration, paying agent activities, or corporate action 

recordkeeping. Does this create any obstacles to complying with the rule, such as 

by creating confusion or uncertainty? Why or why not? Please explain. 

131. There are no Commission regulations addressing plan enrollment practices, such 

as negative consents or automatic enrollments. What risks, if any, arise from 

these enrollment methods? Should the Commission address any such risks? Why 

or why not? If, so how?

132. To ensure that transfer agents make and keep comprehensive records relating to 

all of their activities, should the Commission address records related to Issuer 

Plan and mutual fund activities? Why or why not? For example, should transfer 

agents be required to make and maintain records of orders for the purchase or sale 

of Plan or mutual fund securities in a manner similar to that required of brokerdealers? Why or why not? Should they be required to create and maintain 

records relating to reconciliations with custodial accounts and order-submitting 

entities? Should they be required to make and maintain specific records relating 

to plan participants? Why or why not? Please explain and provide supporting 

evidence regarding any potential effects. To the extent that any data, records, 

and/or other information that such rules might require to be made and preserved 

are prepared and maintained by an outside party on the transfer agent’s behalf, 

should the Commission require that the outside entity file a signed, written 

undertaking with the Commission to the effect that such records are the property 

of the transfer agent and will be surrendered promptly on request of the transfer 

agent and subject to examination by the Commission or other ARA? Why or why 
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not? Please explain and provide supporting evidence regarding any potential 

effects.

133. Should the Commission amend the rules so that transfer agents performing 

specific activities are exempt from broker-dealer registration only if they are (i) 

registered with the Commission as a transfer agent, (ii) limit their activities to 

those specified in the general rule, and/or (iii) agree to abide by certain other 

conditions designed to protect investors and limit the risks associated with those 

activities? Why or why not? Should the Commission require broker-dealer 

registration for any activities beyond what is permitted or conducted by an entity 

that is not registered with the Commission as a transfer agent under such an 

exemption? Why or why not? Please explain and provide supporting evidence 

regarding any potential effects. 

134. Do commenters have any concerns about TPAs who voluntarily register with the 

Commission as transfer agents, but do not provide statutory transfer agent 

services as defined by Exchange Act Section 3(a)(25)? Why or why not? Should 

the Commission prohibit TPAs who do not perform statutory transfer agent 

functions as defined by Exchange Act Section 3(a)(25) from voluntarily 

registering with the Commission as transfer agents? Alternatively, should the 

Commission deny transfer agent registration applications or revoke registrations 

of TPAs that do not provide statutory transfer agent services as defined by 

Exchange Act Section 3(a)(25)? Why or why not? Please explain and provide 

supporting evidence regarding any potential effects.

135. Do commenters have any concerns regarding the activities or business practices 

of TPAs that are not registered with any federal financial regulator? If so, what 

actions, if any, should the Commission consider taking to address these concerns? 

Please explain and provide supporting evidence regarding any potential effects.

136. What risks, if any, do commenters believe are posed by the enrollment and 

purchase and sale activities of transfer agents with respect to Issuer Plans and 

registered investment companies? What, if anything, should the Commission do 

to address such risks and why? For example, would rules focusing on risk 

management address any risks associated with transfer agents’ current role in the 

purchase and sale of securities? Please explain and provide supporting evidence 

regarding any potential effects. Are there additional Issuer Plan activities or 

services provided by transfer agents, Plan Administrators, or other entities that are 

not described in the release? If so, what are they? 

137. Should the Commission conditionally exempt from broker-dealer registration 

transfer agents that effect orders to purchase or sell securities in connection with 

their servicing of Issuer Plans? If so, what conditions, if any, should apply to that 

exemption? Should they be subject to net capital or customer protection 

requirements to guard against the risks of mishandling investors’ funds or 

securities? What regulations, if any, should the Commission propose to safeguard 
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investor privacy? Does the Issuer Plan business necessitate different books and 

recordkeeping requirements? If so, how should the Commission amend its books 

and recordkeeping requirements? Should the Commission’s rules require the 

personnel of Issuer Plan transfer agents who interact with Issuer Plan investors, 

such as call center representatives, to be subject to registration, licensing, training,

or continuing education requirements? Should transfer agents for Issuer Plans be 

permitted to net customer buy and sell orders? Why or why not, and if so, under 

what conditions? Should transfer agents be required to hold the funds of Issuer 

Plan securities in a bank account for the exclusive benefit of investors? Why or 

why not? Under what circumstances should a transfer agent or its personnel be 

disqualified from effecting transactions on behalf of Issuer Plans? Should transfer 

agents be permitted to receive payment for order flow in connection with Issuer 

Plan transactions? Why or why not? What rules might help to ensure the 

integrity of the master securityholder file in cases where a transfer agent servicing 

the Issuer Plan is not the recordkeeping transfer agent?

138. What fees are being charged today by transfer agents directly to investors or 

indirectly to investors (such as through transaction fees in connection with Plan 

Administration activities that are comparable to broker commissions or dealer 

markups)? Should the Commission require transfer agents to clearly and 

concisely disclose fees charged to the investor? Do fees charged to investors by 

transfer agents or by sub-transfer agents encourage or deter investor decisions 

regarding their form of ownership (e.g. the investor decision to hold in DRS, the 

investor decision to request a certificate, or the investor decision to hold in 

registered versus street name)? If these fees influence investor decision-making, 

is the aggregate effect on this influence good or bad for: (i) the protection of 

investors and (ii) continued improvement in the promptness and efficiency of the 

National C&S System? What is the available evidence?

139. Investors who transact with or through a broker-dealer receive confirmations 

pursuant to Rule 10b-10. However, investors holding securities positions directly 

with a transfer agent in DRS, in an Issuer Plan or other program administered by a 

transfer agent, or in a mutual fund that attracts self-directed investors, do not 

always receive comparable information from the transfer agent. Should the 

Commission require transfer agents to provide written communication to a 

securityholder with details about a transaction within a set time period? Why or 

why not? Are there other approaches the Commission could consider to ensure 

that investors are informed about their transactions on a timely basis? If so, 

please describe.

140. While transfer agents may be authorized by an issuer to assist with the enrollment 

process for plan participants, it may not be clear whether investors have initiated 

the enrollment or whether the transfer agent solicited the transaction. Similarly, 

while transfer agents may assist with securityholder inquiries, it may not be clear 

whether agents in so doing may, inadvertently or not, solicit securityholders for 

purchase or sale activities. What controls, if any, do transfer agents put in place 
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to prevent solicitation? Do commenters believe those controls are effective? 

Why or why not? Should the Commission impose additional or different 

controls? Why or why not? Please explain. 

F. Outsourcing Activities and Non-Qualifying Securities Serviced by a Registered 

Transfer Agent

As noted, the transfer agent rules established by the Commission are designed not only to 

ensure that transfer agents meet prescribed performance standards for their core recordkeeping 

and transfer activities, but to ensure they are regulated appropriately in the context of the 

National C&S System562 and that any problems meeting these performance standards do not 

negatively impact individual investors or the National C&S System as a whole.563 Today, some 

transfer agents maintain offices and provide services outside the United States, and almost all 

transfer agents provide an array of services, including for non-Qualifying Securities. Other 

transfer agents may outsource some of their activities or operations to outside entities. For 

example, some registered transfer agents rely on outside entities to provide data hosting or 

specific IT services, perform data entry, or provide call center services. While the Commission 

believes the consistent application of the transfer agent rules to all activities of registered transfer 

agents is critical to protect investors and promote the safe and efficient functioning of the 

National C&S System, we also are mindful that applying the transfer agent rules uniformly to all 

 

562 See Rule 17Ad-1 through 17Ad-7 Adopting Release, supra note 145 (noting the importance of avoiding 

impediments to “the Commission’s efforts to provide necessary or appropriate regulations for transfer 

agents in the broader context of the establishment of a national system for the prompt and accurate 

clearance and settlement of securities transactions.”). 

563 Id. (Exchange Act Rule 17Ad-3 prohibits transfer agents from taking on new or additional business in 

certain circumstances where they fail to meet their performance standards over certain time periods, in part, 

because “it is not in the public interest or consistent with the protection of investors for a transfer agent 

which is unable to perform its current obligations in a timely manner to take on additional 

responsibilities.”)
Page 203 of 208

securities serviced by those transfer agents could: (i) increase costs above those that would be 

incurred if the transfer agent rules applied only to Qualifying Securities; (ii) create conflicts with 

the laws of the other jurisdictions in which a transfer agent operates;

564 or (iii) impact transfer 

agents in other ways. 

Accordingly, the Commission seeks comment on the following:

141. What activities do transfer agents outsource, domestically or foreign, and why? 

Does the outsourcing of these activities present risks or raise other issues? What 

is the empirical evidence? What regulations, if any, should the Commission 

impose to address these risks? For example, should the Commission require 

outsourcing arrangements to be memorialized in a written agreement detailing the 

allocation of responsibilities? Why or why not? If such a written agreement were 

required, should the Commission require some or all records associated with the 

performance of the agreement to be considered records of the registered transfer 

agent and therefore subject to inspection by the Commission? Why or why not? 

Should outsourcing arrangements be disclosed in Form TA-2? Why or why not? 

Should the Commission apply different standards or different rules to transfer 

agents who use or engage in outsourcing activities? If so, what standards should 

apply, and why? Please identify any tradeoffs, including any costs and benefits 

that the Commission should consider. Please also provide supporting empirical 

evidence, if available.

142. Are there non-U.S. regulations governing transfer agents operating outside the 

United States that commenters believe the Commission could use as a model for 

similar regulations in the United States? If so, why, and how do these regulations 

serve the public interest in the jurisdictions in which they apply? If the 

Commission were to consider similar regulations, in what ways should such 

regulations be tailored to operations in the U.S. securities markets? What 

tradeoffs should the Commission consider in evaluating the alternatives?

143. Should the Commission’s transfer agent rules apply with equal force to U.S. and 

non-U.S. transfer agents (or non-U.S. subsidiaries of U.S.-based transfer agents) 

that provide transfer-related services for Qualifying Securities? Why or why not? 

144. Should the Commission codify existing staff interpretations stating that registered 

transfer agents that service at least one Qualifying Security must apply all of the 

 

564 For example, the privacy laws of some foreign jurisdictions may not permit the fingerprinting required 

under Rule 17f-1. 
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transfer agent rules to all securities serviced by that transfer agent, including nonQualifying Securities? Alternatively, should the Commission provide exemptions 

regarding non-Qualifying Securities from one or more or from all of the 

Commission’s transfer agent rules? Why or why not? If so, what exemptions 

would be appropriate, and why? How would any such exemptions protect 

investor funds and securities, ensure the safe and efficient functioning of the 

National C&S System, and ensure appropriate oversight by regulators of transfer 

agents and the entities that perform services on their behalf? 

145. Are there technological, legal, policy, or other reasons why a registered transfer 

agent would not be able to apply the transfer agent rules to all securities serviced 

by the transfer agent? Why or why not? If so, should the Commission provide

exemptions to address such issues, and what should such exemptions provide? 

146. Do transfer agents typically have access to or control over records created or held 

by sub-contractors?565 If so, are those records part of the records that transfer 

agents provide to the Commission in response to requests? Why or why not?

147. Do other transfer agent activities, such as operating call centers, present investor 

protection or other concerns? How are call center employees supervised? How 

are call center employees trained on applicable federal securities law and legal 

documents that may govern or affect the issuer, for example policies and 

procedures of the issuer and, for certain types of issuers, prospectus limitations? 

Are risks greater if these securityholder services are conducted by offshore call 

centers?

148. Should the Commission impose additional recordkeeping, processing, and transfer 

rules on outside entities retained by transfer agents to address concerns that thirdparty firms may pose a risk to investors and the National C&S System? If so, 

should those rules apply to foreign firms that are engaged in services for U.S. 

issuers? Why or why not?

149. As noted, both Reg SDR and Reg SBSR may permit, in certain circumstances, 

substituted compliance for foreign participants and registrants. Should the 

Commission take a similar approach to regulating non-U.S. transfer agents? Why 

or why not?

 

565 Regarding sub-contractor relationships, see generally, Section VII.C.1. 
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G. Additional Request for Comment

We are also interested in more generalized concerns related to transfer agents and any 

other issues that commenters may wish to address relating to transfer agents. For example, we 

seek comment on how the role of transfer agents may continue to evolve, and what regulatory 

challenges these changes may pose. Please be as specific as possible in your discussion and 

analysis of any additional issues. In connection with comments, we also welcome comments that 

respond to requests for comment or of their own accord, and/or suggest specific amendments or 

new additions to the transfer agent rules including draft rule text. We also request commenters 

to provide any specific, detailed data and information related to potential or actual costs and 

benefits associated with any of the suggested reforms, changes, or amendments discussed 

throughout this release. Accordingly, the Commission seeks comment on the following:

150. Do the transfer agent rules accomplish the Commission’s regulatory objectives of 

protecting investors, promoting the prompt and accurate clearance and settlement 

of securities transactions, and evaluating transfer agents’ ability to perform their 

functions properly? Why or why not? Please provide a full explanation.

151. Do the current transfer agent rules adequately address the interests of issuers? If 

not, in what ways do they not address issuers’ interests and should they? Why 

and in what way?

152. Do the current transfer agent rules adequately address the interests of other market 

participants? If not, in what ways do they not address those interests and should 

they? Why and in what way?

153. Some of the original transfer agent rules established metrics-based performance 

standards designed to measure the transfer and processing of paper certificates. 

Given the prevalence of electronic transactions, do those metrics-based 

performance standards adequately address transfer agents’ operational 

capabilities, which now largely depend on systems and technology that did not 

exist when the original rules were adopted in 1977? Should the Commission rely

on a different or additional approach to regulating transfer agents, such as a riskbased approach focused on the risks associated with specific activities or conduct? 

Please provide a full explanation. 
Page 206 of 208

154. In what ways do the activities performed and services provided by transfer agents 

differ depending on the type of issuer, asset class, product category, market 

segment, or other factors the transfer agent is servicing? For example, are there 

differences in activities, services, or other areas between issuers that act as their 

own transfer agent and independent transfer agents? If so, what are those 

differences? Do a transfer agent’s processes differ if the transfer agent is 

servicing debt securities instead of equity securities? If a transfer agent primarily 

services debt securities, do the transfer agent’s processes differ depending on the 

specific type of debt security being serviced (e.g., corporate, asset-backed, etc.)? 

Are there differences in services provided, compensation arrangements, or other 

areas between or among different types of transfer agents? If so, what factors 

influence or affect those differences? Do transfer agents tend to service one type 

of issuer, asset class, or market segment to the exclusion of others? If so, what 

factors influence that focus and why? Please explain.

155. Do commenters believe that transfer agent servicing of debt securities raises 

different issues or concerns than those raised by servicing of equity securities? 

Do commenters believe there are specific risks or issues related to transfer agents’ 

servicing of debt issues that are not addressed by existing Commission transfer 

agent rules? Are there differences in agreements that equity transfer agents enter 

into with issuers as compared to transfer agency agreements between debt transfer 

agents and issuers, including differences in services to be provided, methods of 

compensation, or any other topics?

156. Should the Commission propose different rules for different types of transfer 

agents depending on the particular issuer type, asset class, or market segment 

serviced by the transfer agent? Why or why not? 

157. What fees do transfer agents assess with respect to processing DRS instructions? 

How and to whom are such fees assessed? Do commenters believe the 

Commission should consider regulating such fees in some manner? If so, why 

and how? Please explain. 

158. Do transfer agent fees vary, depending upon the asset class of the security 

serviced by the transfer agent? If so, how do they vary? To what extent does 

competition among transfer agents constrain such fees, and what is the evidence? 

Should the Commission require that any such fees be fair and reasonable? Why 

or why not? Please provide a full explanation.

159. To what extent are co-transfer agents used in securities processing today? Should 

the Commission amend its rules with respect to co-transfer agents?

160. What, if any, are the problems in the marketplace today with respect to the role of 

transfer agents and corporate actions? Should the Commission propose rules 

governing transfer agent services provided in connection with corporate actions? 

Why or why not? If so, which types of services provided in connection with 
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corporate actions should the Commission consider regulating? 

161. Should the Commission propose rules requiring standardized corporate actions 

processing as a method to facilitate communications among market 

participants? Why or why not? If so, what are the primary market issues that 

such a standardization program is likely to address? Would there be any market 

issues that such a standardized program would not be able to address? Please 

explain. 

162. What, if any, are the risks posed by transfer agents’ role when they serve as: (i) 

tender agent; (ii) subscription agent; (iii) conversion agent; or (iv) escrow agent? 

Do commenters believe rules governing transfer agent services provided in 

connection with these services would be appropriate? Why or why not? If so, 

what regulatory action should the Commission consider to address those concerns 

and why?

163. Do commenters believe there are any concerns that might arise from regulation of 

the proxy tabulation process generally and the transfer agents’ role in the proxy 

process in particular? If so, what regulatory action, if any, should the 

Commission consider to address those concerns and why? 

164. Is the role that transfer agents play in the proxy process useful for efficient, 

accurate, and timely communications between issuers and their securityholders? 

In light of comments previously received by the Commission in connection with 

its concept release concerning the proxy process, are there additional concerns 

regarding consolidation in the market? If so, please describe any such concerns.

165. In connection with considerations of transfer agents’ role within the National 

C&S System, do commenters believe the creation of an SRO for transfer agents 

would be useful or appropriate? Why or why not? If so, what should the scope of 

the purview of such an SRO be, and what should the SRO be tasked with? Please 

explain.

166. Do commenters believe the introduction of certain alternatives to the current 

central securities depository model, such as a modified transfer agent depository, 

could be beneficial to issuers, securityholders, and/or the National C&S System? 

Why or why not? Could it co-exist with the current central depository system? 

Why or why not? What would such a modified depository entail or look like?

167. Some observers have commented that current DTC requirements, such as those 

related to DRS and FAST, operate as so-called de facto regulation of transfer 
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agents by DTC.566 Is this accurate? If so, do such DTC requirements create 

inconsistencies and/or conflicts for transfer agents to comply with all rules and 

requirements? Why or why not? If yes, please describe the inconsistencies 

and/or conflicts. Should the Commission adopt any of DTC’s current 

requirements or standards that apply to transfer agents who conduct business with 

DTC as rules? Why or why not? If so, what requirements or standards should be 

considered, and why?

168. Should the Commission propose any other amendments to the transfer agent rules 

that are not discussed above? If so, please describe what amendments should be 

considered and why, including any information on the benefits, risks, and/or 

burdens of any suggested approach. 

169. How might the transfer agent industry continue to evolve in the future, and what 

challenges might that evolution pose for the regulatory structure? What 

regulatory issues and other challenges are posed by the industry’s increasing 

concentration and specialization? What does the decline in the number of 

registered securityholders mean for the industry, and for the regulatory regime? 

Do commenters believe that, as dematerialization progresses, the role of transfer 

agents to operating companies will change? If so, will it converge with that of 

Mutual Fund Transfer Agents? If so, what are the possible implications of this?

170. Are there any other issues that commenters may wish to address relating to 

transfer agents? Please provide a full explanation.

By the Commission.

Brent Fields

Secretary

December 22, 2015

 

566 See Securities Exchange Act Release No. 60196 (June 30, 2009), 74 FR 33496 (File No. SR-DTC-2006-

16) (specifically, comment letter from Martin (Jay) J. McHale, President, U.S. Equity Services, 

Computershare, Mar. 20, 2008; comment letter from Charles V. Rossi, President, Securities Transfer 

Association, June 22, 2007; comment letter from Gary N. Nazare, Managing Director, Transfer Agency 

Services, The Bank of New York, June 29, 2007).