Federal Register / Vol. 62, No. 194 / Tuesday, October 7, 1997 / Rules and Regulations 52229

1For example, some securityholders do not

provide a new address when they move.

2See Securities Exchange Act Release No. 37595

(August 22, 1996), 61 FR 44249 (release proposing

Rule 17Ad–17 and Rule 17a–24), note 13

(discussing the methods transfer agents currently

use to locate lost securityholders).

3 Id. The Commission later extended the comment

period contained in the Proposing Release.

Securities Exchange Act Release No. 37949

(November 15, 1996), 61 FR 59046 (extending

comment period).

4 17 CFR 240.17Ad–17.

5 17 CFR 240.17Ad–24.

6 17 CFR 240.17Ad–7.

7The Proposing Release also discussed transfer

agents’ obligations under Rule 17Ad–10 to maintain

and keep current accurate master securityholder

files (defined below in note 10), which include

information such as securityholders’ names and

addresses. The Proposing Release concluded that

maintaining accurate securityholder files is one of

the most basic steps in addressing the lost

securityholder problem. The Commission believes

that conducting data base search for lost

securityholders pursuant to Rule 17Ad–17 will

enhance a transfer agent’s fulfillment of its

responsibilities under Rule 17Ad–10.

8The Commission received comment letters from

eighteen transfer agents, five trade associations

representing transfer agents, five individuals, three

corporations, one broker-dealer, two professional

search firms, and eighteen government entities. A

summary of comments has beem prepared by the

staff of the Division of Market Regulation. The

summary is included along with the comment

letters in Public File No. S7–21–96, which is

available for inspection and copying in the

Commission’s Public Reference Room, 450 Fifth

Street, NW., Washington, DC 20549.

9Form TA–2 is referenced in 17 CFR 249b.102.

77°35′15′′W.; to lat. 34°32′42′′N., long.

77°34′54′′W.; to the point of beginning.

Designated altitudes. 7,000 feet MSL to but

not including 10,000 feet MSL.

Time of designation. By NOTAM at least

24 hours in advance.

Controlling agency. USMC, Cherry Point

Approach Control.

Using agency. USMC, Commanding

General, U.S. Marine Corps Air Station,

Cherry Point, NC.

R–5304C Camp Lejeune, NC [New]

Boundaries. Beginning at lat. 34°37′03′′N.,

long. 77°35′25′′W.; to lat. 34°36′13′′N., long.

77°31′51′′W.; to lat. 34°36′51′′N., long.

77°29′01′′W.; to lat. 34°32′16′′N., long.

77°30′13′′W.; to lat. 34°29′43′′N., long.

77°35′15′′W.; to lat. 34°32′42′′N., long.

77°34′54′′W.; to the point of beginning.

Designated altitudes. 10,000 feet MSL to

but not including FL 180.

Time of designation. By NOTAM at least

24 hours in advance.

Controlling agency. FAA, Washington

ARTCC.

Using agency. USMC, Commanding

General, U.S. Marine Corps Air Station,

Cherry Point, NC.

* * * * *

Issued in Washington, DC, on October 1,

1997.

John S. Walker,

Program Director for Air Traffic Airspace

Management.

[FR Doc. 97–26671 Filed 10–6–97; 8:45 am]

BILLING CODE 4910–13–P

SECURITIES AND EXCHANGE

COMMISSION

17 CFR Parts 240 and 249

[Release No. 34–39176; File No. S7–21–96]

RIN 3235–AG99

Lost Securityholders

AGENCY: Securities and Exchange

Commission.

ACTION: Final rule.

SUMMARY: The Securities and Exchange

Commission is adopting Rule 17Ad–17

and Rule 17a–24 under the Securities

Exchange Act of 1934. Rule 17Ad–17,

which is designed to address the

problem of ‘‘lost securityholders,’’

requires transfer agents to conduct

searches in an effort to locate lost

securityholders. Rule 17a–24, which is

designed to assist the Commission in

monitoring the effects of Rule 17Ad–17,

requires transfer agents to file

information on lost securityholders with

the Commission. The rules are designed

to reduce the number of lost

securityholders.

EFFECTIVE DATE: §§ 240.17Ad–17 and

240.17Ad–7(i) will be effective

December 8, 1997, and §§ 240.17a–24

and 249b.102, the amendments to Form

TA–2 will be effective February 4, 1998.

FOR FURTHER INFORMATION CONTACT: Jerry

W. Carpenter, Assistant Director;

Christine Sibille, Senior Counsel; Jeffrey

Mooney, Attorney; or Theodore Lazo,

Attorney at 202/942–4187, Office of

Risk Management and Control, Mail

Stop 5–1, Division of Market Regulation,

Securities and Exchange Commission,

450 Fifth Street, NW., Washington, DC

20549.

SUPPLEMENTARY INFORMATION:

I. Introduction and Background

Transfer agents serve as the

custodians of securityholder records,

including records of securityholders’

addresses, for issuers. In this capacity,

transfer agents frequently are

responsible for disseminating

shareholder communications and

dividend and interest payments. For

various reasons, transfer agents

occasionally have outdated or incorrect

addresses for some securityholders

(‘‘lost securityholders’’).1 As a result,

these shareholders do not receive

dividend and interest payments to

which they are entitled. Generally,

issuers retain custody of such dividend

and interest payments, and if contact is

not reestablished with a securityholder

prior to the expiration of the appropriate

state’s escheat period, the issuer must

turn the securityholder’s assets over to

the state unclaimed property

administrator While various transfer

agents attempt to locate lost

securityholders, the extent and type of

efforts used very considerably from one

transfer agent to another.2 The

Securities and Exchange Commission

(‘‘Commission’’) believes that

establishing minimum search

requirements in this area will facilitate

locating lost securityholders.

On August 22, 1996, the Commission

issued for comment a release

(‘‘Proposing Release’’) 3 proposing Rule

17Ad–17 4 and Rule 17a–24 5 under the

Securities Exchange Act of 1934

(‘‘Exchange Act’’) and proposing

amendments to Rule 17Ad–7,6 which

were designed to address the problem of

lost securityholders. Proposed Rule

17Ad–17 would require that transfer

agents exercise reasonable care,

including conducting data base

searches, in an effort to locate lost

securityholders.7 The proposed

amendment to Rule 17Ad–7 set forth the

retention time periods for the records

relating to compliance with proposed

Rule 17Ad–17. Proposed Rule 17Ad–24

would have required certain entities

that hold assets for others (e.g., transfer

agents and broker-dealers) to file

annually with the Commission a list of

the social security numbers of all lost

securityholders contained in their

records. The Proposing Release also

requested comment on whether either

the Commission or a private entity

should create and operate a lost

securityholder data base.

The Commission received 57

comment letters from 52 commenters in

response to the Proposing Release.8 The

commenters in general expressed

support for proposed Rule 17Ad–17

although several commenters expressed

concerns about specific provisions of

the proposed rule. The commenters in

general expressed concern about

proposed Rule 17a–24. The Commission

is adopting Rule 17Ad–17 substantially

as proposed but with some

modifications to reflect commenters’

views and is amending Rule 17Ad–7 as

proposed. The Commission is adopting

proposed Rule 17a–24 with substantial

revisions and is making related changes

to Form TA–29 In addition, the

Commission has directed its staff to

review the operations of the adopted

rules after three years and to report back

to the Commission on its findings.
52230 Federal Register / Vol. 62, No. 194 / Tuesday, October 7, 1997 / Rules and Regulations

10 ‘‘Master securityholder file’’ is defined in Rule

17Ad–9(b) as the official list of individual

securityholder accounts.

11The Proposing Release noted that the three

month period was intended to give transfer agents

time to receive any delayed change of address

notifications prior to having to conduct searches.

12For example, if an issue does not pay dividends

or interest, the only securityholder correspondence

may be the annual report. In such an instance, a

securityholder would not have been classified as

lost until a year after the first correspondence had

been returned as undeliverable.

13The revised definition avoids situations where

securityholders of issues with quarterly mailings

would have been defined as lost three months after

a correspondence was first returned as

undeliverable while securityholders of issues with

only annual mailings would not have been defined

as lost until a year after a correspondence was first

returned as undeliverable.

14Transfer agents have found that some items are

returned as a result of the deliverer’s error rather

than an incorrect address and that remailing will

result in the securityholder receiving the item.

15–16As discussed in the Proposing Release, the

Commission encourages transfer agents to take

immediate steps upon learning a shareholder’s

address may not be correct. Proposing Release, note

16. The Proposing Release discusses several

techniques that, while not required by the rule, may

be beneficial in reducing the number of lost

securityholders for which the transfer agent must

search. Proposing Release, note 13.

17Between three to 12 months would have

elapsed between the first and second returned items

of correspondence, and the first search would have

had to be conducted within three months after the

return of the second item of correspondence.

II. Discussion

A. Rule 17Ad–17: Obligation to Search

As adopted, Rule 17Ad–17 requires

that transfer agents exercise reasonable

care to ascertain the correct addresses of

all lost securityholders in their records.

At a minimum, transfer agents must

conduct two searches using an

information data base. In addition,

transfer agents may not use any service

designed to locate their lost

securityholders that results in a charge

to a securityholder until after the two

data base searches have been conducted.

1. Definition of Lost Securityholders

Rule 17Ad–17 generally defines a

‘‘lost securityholder’’ as a securityholder

to whom an item of correspondence that

was sent to the securityholder at the

address in the transfer agent’s master

securityholder file has been returned as

undeliverable.10 However, if a transfer

agent re-sends the returned item to the

securityholder within one month, the

transfer agent has the option to delay

classifying the securityholder as lost for

purposes of Rule 17Ad–17 until the

item is again returned to the transfer

agent as undeliverable. If and when a

transfer agent receives a new address for

a lost securityholder, either directly

from the securityholder or through the

transfer agent’s own efforts, the

securityholder will no longer be

classified as lost.

Under the definition as proposed, a

securityholder would have been

classified as lost only after two separate

items of correspondence mailed at least

three months apart had each been

returned as undeliverable. Commenters

in general were opposed to a

requirement that three months elapse

between the mailing of two

undeliverable items of correspondence,

stating that this approach would

increase costs by requiring transfer

agents to initiate new coding

mechanisms.11 In addition, some

commenters stated that continuing to

mail distributions to an incorrect

address increases risk of loss.

Commenters also noted that the

proposed definition of lost

securityholder could result in long

delays before some shareholders are

defined as lost.12

The Commission believes that the

revised definition produces a more

consistent result as to when

shareholders are classified as lost.13 In

addition, the Commission understands

that some transfer agents have internal

procedures whereby they promptly

remail returned correspondence because

they have found such remailing

procedures to be beneficial in reducing

the number of lost securityholders.14

Therefore, the revised definition gives

transfer agents flexibility to delay

coding a securityholder as lost until

after the remailed item is returned as

undeliverable.

In addition, the Commission is

making minor technical amendments to

the proposed definition of lost

securityholder. For example, to take into

account future developments in the

methods used to disseminate

shareholder communications, the rule

no longer refers to returned

correspondence that were ‘‘sent by first

class mail.’’

2. Transfer Agents’ Search Requirements

a. Type of Search

Rule 17Ad–17 requires every

recordkeeping transfer agent whose

master securityholder file includes

accounts of lost securityholders to

search for such securityholders’ current

address using at least one information

data base. The transfer agent’s search for

a lost securityholder must be based on

the taxpayer identification number

(‘‘TIN’’) or on the name of the lost

securityholder if a search based on TIN

is not reasonably likely to locate the lost

securityholder.

As originally proposed, the search

could be based on a securityholder’s

name if such a search was reasonably

likely to locate the lost securityholder.

Commenters were divided as to the

advisability of such provision. While

most commenters agreed that TIN

searches are more effective, some

commenters argued that transfer agents

should have the flexibility to search by

name when advisable (e.g., when the

TIN is missing or incomplete). By

revising the requirement to permit name

searches only when a TIN search is not

reasonably likely to locate the lost

securityholder (e.g., when the TIN is

missing or incomplete), the Commission

believes transfer agents are afforded

sufficient flexibility to conduct the most

effective search.

b. Time Frames for Search

The rule as adopted also differs from

the proposal with respect to the time

frames in which the searches must be

conducted. As proposed, a transfer

agent would have had to conduct a

search within three months of a

securityholder being classified as lost. If

after the first search the securityholder

had continued to be classified as lost,

the proposal would have required

another search between 12 and 18

months after the initial search. Many

commenters suggested that conducting

an initial search three months after a

securityholder was classified as lost was

too soon for the data bases to be

updated, and that conducting a second

search between 12 and 18 months after

the first search was too long a period

from loss of contact.

As adopted, a transfer agent must

conduct the initial search between three

and 12 months of a securityholder being

classified as lost.15–16 If the lost

securityholder is not found, the transfer

agent must conduct a second search

between six and 12 months after the

initial search.

Demonstrated below are time frames

in which the second search would need

to be conducted depending upon when

the first search occurred.
Federal Register / Vol. 62, No. 194 / Tuesday, October 7, 1997 / Rules and Regulations 52231

17Between three to 12 months would have

elapsed between the first and second returned items

of correspondence, and the first search would have

had to be conducted within three months after the

return of the second item of correspondence.

18 In calculating this amount, all assets in that

account for which the transfer agent maintains

records are included regardless of whether the

transfer agent is actually in possession of the

property. Therefore, the value of the assets in the

securityholder’s account includes dividends,

interest, and other payments due to the

securityholder and the value of any underlying

assets (e.g., the value of securities owned by the

shareholder as shown on the transfer agent’s

records). 19Refer to Section IV below for a discussion of

the cost of data base searches. 20Some commenters stated that for efficiency

reasons some transfer agents will search for all lost

securityholders.

21Such documentation may consist of a report

received from an information data base.

22The Commission has been informed that in the

future some information data bases may be updated

to include beneficiary data. If a low cost method of

determining a deceased’s beneficiary becomes

available, the Commission may reexamine the

application of search requirements to this category

of securityholder.

Lost 3 mos. 9 mos. 12 mos. 15 mos. 18 mos. 21 mos. 24 mos.

  ←1st Search‰ «

1st search at:

3 mos.  ←2d Search‰ «

6 mos.  ←2d Search‰ «

9 mos.  ←2d Search‰ «

12 mos.  ←2d Search‰ «

The second search is intended to take

advantage of address changes that may

have been added to the data base after

the initial search. The transfer agent

must conduct these searches without

charge to a lost securityholder. Under the proposed rule, the time in

which transfer agents would have been

required to conduct the first search

would have depended on the frequency

of mailings associated with an issue.

(The first search would have had to be

conducted between three and 15 months

after the return of the first

correspondence based on whether the

issue had quarterly or annual

mailings.) 17

Because the timing of the search

requirements would have been

dependent upon the frequency of

issuers’ mailings, commenters noted

that transfer agents would not have had

much flexibility in determining when to

search for lost securityholders. Under the adopted rule, the first

search must be conducted between three

to 12 months after the first

correspondence is returned. However,

unlike the proposed rule, transfer agents

may search at any time during this

period. As a result, transfer agents’

search requirements are triggered within

basically the same timeframes whether

there are quarterly or annual mailings,

but transfer agents will be better able to

use their discretion as to the most

appropriate time to conduct the

searches. Additionally, this revision

may permit transfer agents to conduct

more cost-effective searches by allowing

transfer agents to bundle together many

lost securityholders for submission to a

data base service which should lower

internal costs and increase the

likelihood that transfer agents will

qualify for volume discounts from data

base services.

c. Exceptions to the Search

Requirement

In the Proposing Release, the

Commission requested comment on

whether the requirement to search for

lost securityholders should apply only

when a lost securityholder’s account

contained assets over some de minimis

amount.18 Many commenters agreed

that transfer agents should not be

required to expend funds to search for

a lost securityholder when the cost of a

search could exceed the amount in the

securityholder’s account. Although

varying de minimis amounts were

suggested, most commenters favored a

de minimis threshold of $100 per

account.

The Commission believes that there

should be a de minimis exception from

the search requirements that will allow

transfer agents to forgo searches that

would not be cost-effective. Based on

what the Commission understands to be

the low cost of data base searches,19 the

Commission is amending the proposed

rule to permit transfer agents to exclude

from the search requirements any lost

securityholder when the value of all

dividend, interest, and other payments

due to the securityholder plus the value

of all assets listed in the lost

securityholder’s account is less than

$25. The Commission believes that this

exemption will reduce the economic

impact of the rule on transfer agents

while still affording sufficient

protection to securityholders.20

In the Proposing Release, the

Commission noted that data base

searches generally are considered a costeffective way to locate lost

securityholders. The Commission

requested comment on the potential

effectiveness of the rule in addressing

the lost securityholder issue. The

request was intended to elicit comment

on situations where data base searches

would not be an appropriate method of

locating lost securityholders. One

commenter requested that exemptions

from the search requirement be created

for certain categories of securityholders

that will not be reached through an

electronic data base search, specifically

any lost securityholder (1) whose last

known address is outside of the United

States; (2) whose account has a missing

or incomplete TIN; (3) which is not a

natural person (e.g., a corporation); or

(4) who is known to be deceased.

Based on this request and on

additional research into the capabilities

of existing commercial data bases, the

Commission has decided to create an

exemption from the search requirements

for securityholders for whom the

transfer agent has received

documentation of their death 21 and an

exemption for securityholders which are

not natural persons. The Commission

understands that the data bases relied

upon by most transfer agents do not

contain information on estates or heirs

and that there is no automated method

by which such information can be

obtained. 22 Securityholders which are

not natural persons likewise cannot be

located easily through the use of

information data bases and comprise a

minuscule percentage of the total

amount of lost securityholders. The Commission is not adopting the

other suggested exemptions because

data base searches for those categories of

lost securityholders could in many cases

be effective. For example, although the

Commission understands that most data

bases currently do not contain the

names of individuals living outside of

the United States, it is possible that a

securityholder with a foreign last known

address was only temporarily living out

of the country and that a data base

search will provide an updated

domestic address.

With respect to the commenter’s

request for an exemption for

securityholders with missing or

incomplete TINs, the adopted rule

permits transfer agents to conduct a

search based on a lost securityholder’s

name when a search based on a TIN is

not reasonably likely to locate a lost
52232 Federal Register / Vol. 62, No. 194 / Tuesday, October 7, 1997 / Rules and Regulations

23Because a professional search firm that charges

a fee to the transfer agent rather than to lost

securityholders could qualify as an information

data base search under the rule, professional search

firms could be used to satisfy the transfer agent’s

search obligation under Rule 17Ad–17.

24Rule 17Ad–7 sets forth the lengths of time and

the methods by which transfer agents must

maintain the records which they are required to

keep pursuant to Exchange Act Rules 17Ad–6, 17f–

2, and 17Ad–17.

securityholder. Therefore, the

Commission also believes that no

exemption should be created for

accounts with missing TINs.

d. Assessment of Procedures

In the Proposing Release, the

Commission requested comment on

whether the rule should include (1) a

requirement that transfer agents

periodically assess the effectiveness and

appropriateness of the search

procedures and technology they

employ, and/or (2) a requirement that

transfer agents’ search procedures meet

a performance standard based on

success in locating lost securityholders.

Most commenters that addressed the

issue generally did not support adopting

a strict application of this requirement.

For example, some commenters believe

that transfer agents should not have an

absolute requirement to locate a certain

percentage of their shareholders because

the results of the searches frequently

were outside of their control. While the

adopted rule does not specifically

contain such requirements, the

Commission believes that transfer

agents should bear these concepts in

mind in determining whether they have

met their obligation to exercise

reasonable care under Rule 17Ad–17(a).

For example, if a transfer agent is using

a data base service that routinely fails to

locate any or that locates only a very

small percentage of lost securityholders,

the transfer agent should evaluate

whether the use of such service

constitutes the exercise of reasonable

care.

3. Definition of Information Data Base

As proposed, Rule 17Ad–17 would

have defined an information data base

as any automated data base service that

(1) contains addresses of U.S. residents,

including addresses in the geographic

area in which the lost securityholder’s

last known address is located, (2) covers

a reasonably broad geographic area, (3)

is indexed by TIN or by name, and (4)

is updated at least four times a year. The

Commission has revised the definition

based on commenters’ suggestions. The

first requirement has been revised to

require that the data base contain

addresses from the entire United States.

The second requirement has been

revised to require that the data base

contain names of at least 50% of the

U.S. adult population. The third

requirement also has been revised to

clarify that an information data base

must be indexed by TINs if a TIN search

is used or by name if a name search is

used. The fourth requirement is adopted

as proposed. The revisions are intended

to preclude the use of a data base that

contains a small number of names but

covers a broad geographic area or one

that contains a large number of names

but covers only a small geographic area.

The Commission also is adopting an

alternative standard that will provide

flexibility to transfer agents in fulfilling

their obligations to search for lost

securityholders. The alternative will

permit transfer agents to use any service

to locate lost securityholders if that

service produces comparable results to

the information data base described

above. As part of their obligation to

maintain records discussed below, a

transfer agent relying on this alternative

would be required to develop written

procedures documenting and describing

the alternative service used.

4. Use of Professional Search Firms

The Proposing Release discussed the

current practice of some transfer agents

to use professional search firms that

charge a lost securityholder a fee for

locating the lost securityholder’s assets.

As proposed and as adopted, Rule

17Ad–17 will prohibit a transfer agent

from using any service to locate a

securityholder that results in a charge to

the securityholder until after the two

data base searches required by the rule

have been conducted. While a few

commenters argued against the

proposed prohibition, many

commenters supported the provision

with some arguing for additional

restrictions.

Although the more extensive search

techniques employed by professional

search firms may locate some

securityholders that the data base

searches will not locate, the charges of

such firms can cost a securityholder a

significant portion of his or her assets.

The Commission believes that transfer

agents should make efforts (i.e., the

search provisions of Rule 17Ad–

17(a)(1)) to locate lost securityholders

before permitting services to charge

them for reuniting them with their

assets. Therefore, the Commission is

adopting Rule 17Ad–17(a)(2) as

proposed to delay transfer agents’ use of

professional search firms where the

charge is assessed to the securityholder

until after a transfer agent has

completed two searches under Rule

17Ad–17.23

5. Verification of Securityholder

In order to guard against delivery of

distributions to an incorrect recipient,

the Commission recommended in the

Proposing Release that transfer agents

should verify that the person at the

newly obtained address is in fact its

account holder before disbursing

securities or funds. One commenter

expressed concern that requiring a

transfer agent to confirm a

securityholder’s identity may restrict

the transfer agent’s ability to correct its

master securityholder file because some

shareholders may fail to return

verification forms. The language in the

Proposing Release was not intended to

mandate a particular procedure. Instead,

it was intended to highlight the need for

transfer agents to use care prior to

disbursement of securityholder funds.

Prior to disbursing funds or to updating

their master securityholder files,

transfer agents should determine

whether such action is appropriate

based on all relevant factors.

B. Rules 17Ad–7 and 17Ad–17:

Recordkeeping Requirements

Rule 17Ad–17 requires that all

recordkeeping transfer agents maintain

records to demonstrate their compliance

with the requirements under the rule.

Paragraph (i) is being added to Exchange

Act Rule 17Ad–7 to require that transfer

agents maintain the records required by

Rule 17Ad–17 for a period of not less

than three years and that transfer agents

maintain these records in an easily

accessible place during the first year.24

In the Proposing Release, the

Commission suggested that transfer

agents document the date each

securityholder is classified as lost and

the date the data base searches are

conducted. One commenter interpreted

this discussion to be a requirement that

such dates be recorded on each lost

securityholder’s individual account

record. This commenter stated that this

requirement could require costly

systems upgrades and that transfer

agents instead should be allowed to

demonstrate that data base searches

have been conducted by referencing

procedures that are in place and that

reasonably assure that the searches are

conducted on a timely basis. The

language in the Proposing Release was

not intended to specify the

recordkeeping method to be used by

transfer agents. Rather it was intended

to provide flexibility to transfer agents

to create systems that adequately

demonstrate compliance with Rule

17Ad–17. However, the Commission

does not believe that referencing
Federal Register / Vol. 62, No. 194 / Tuesday, October 7, 1997 / Rules and Regulations 52233

25 61 FR at 44252–44253.

26 61 FR at 44253.

27The Commission requested comment in the

Proposing Release on whether the filing

requirement should include information concerning

the length of time securityholders have been lost.

61 FR at 44253.

28Pursuant to Exchange Act Rule 17Ac2–2,

registered transfer agents are required to file an

annual report on Form TA–2 by August 31 of each

calendar year. 17 CFR 240.17Ac2–2.

29 5 U.S.C. 601–612.

30The cost data that the Commission received is

discussed more fully in Section IV below.

procedures without any specific

documentation demonstrating that

searches have been appropriately

conducted is adequate.

The Commission also is adding

language to Rule 17Ad–17 to clarify that

transfer agents must maintain written

procedures on how they will comply

with the rule. The amendment to the

rule is intended to give transfer agents

more guidance on what the minimum

recordkeeping requirements are while

still providing flexibility to determine

the most efficient method of

demonstrating compliance with the

requirements of the rule.

C. Rule 17a–24: Lost Securityholder

Data

In the Proposing Release, the

Commission also discussed the creation

of a data base that would contain

information (e.g., TINs) on all lost

securityholders. Proposed Rule 17a–24

would have required certain entities

that hold assets for others (e.g., transfer

agents and broker-dealers) to file

annually with the Commission a list of

the TINs of all lost securityholders

contained in their records. The

Commission also requested comment on

whether the Commission or its delegee

should create and operate a lost

securityholder data base or whether the

Commission should release the

information it received under Rule 17a–

24 to the public to permit private

entities to create data bases.

Most commenters were opposed to

the creation of a lost securityholder data

base. Many commenters believed that

the data base would result in a loss of

privacy for securityholders. Other

commenters suggested that the data base

could result in fraudulent claims.

Finally, some commenters opined that

the data base would be of limited utility

because it would require that

securityholders take the initiative to

discover whether they had any

unclaimed assets.

In response to concerns expressed by

commenters, the Commission has

determined to adopt proposed Rule

17a–24 with revisions that will only

require the reporting of certain aggregate

data. As noted in the Proposing Release,

the Commission believes that there is a

need to gather data on lost

securityholders in order to obtain better

information as to the extent to which

lost securityholders are not receiving

assets to which they are entitled and to

assess the effectiveness of search

techniques employed by transfer

agents.25 Similar to the proposed rule,

the final rule will require each

recordkeeping transfer agent to file

annually with the Commission

information on lost securityholders

contained in the transfer agent’s

records.26 However, the Commission

has determined to require transfer

agents to submit only aggregate data

regarding the accounts of lost

securityholders instead of the

individual data that would have been

required by proposed Rule 17a–24. This

aggregate information would have been

available by totaling the information

that would have been required by

proposed Rule 17a–24 or currently is

readily accessible by transfer agents.

Specially, the Commission is revising

proposed Rule 17a–24 to require

registered transfer agents to disclose the

aggregate number of lost securityholder

accounts as of June 30 of each year and

the percentage of total accounts

represented by such lost securityholder

accounts. These figures would be

reported for specified periods of time:

one year or less, three years or less, five

years or less, or greater than five years.27

The Commission also is requiring

information on lost securityholder

accounts that escheat to state unclaimed

property administrators on an annual

basis. To facilitate the reporting of this

information, the Commission is

amending Exchange Act Form TA–2,28

the annual report of registered transfer

agents. The Commission believes that

this will be the least burdensome and

most efficient way for transfer agents to

comply with the revised rule.

The Commission believes that revised

Rule 17a–24 is preferable to the rule as

proposed at this time. The aggregate

information required by the adopted

rule should, as a result of Rule 17Ad–

17, be readily available to transfer

agents. Moreover, the collection of

aggregate data, rather than taxpayer

identification numbers or other personal

data, ameliorates privacy concerns

raised by some commenters. In addition

to not requiring individual data, the

revised rule will enable the Commission

to better monitor the effectiveness of

Rule 17Ad–17 over time and determine

whether additional measures are

necessary to find lost securityholders.

Finally, the Commission has narrowed

the scope of the rule. Unlike the

proposed rule which would have

applied to any recordkeeping brokerdealer or transfer agent, as adopted Rule

17a–24 applies only to recordkeeping

transfer agents. The Commission

believes that a narrower focus is

preferable at this time.

III. Regulatory Flexibility Analysis

The following discussion summarizes

the Commission’s Final Regulatory

Flexibility Analysis (‘‘FRFA’’) in

accordance with the Regulatory

Flexibility Act (‘‘RFA’’) 29 in connection

with Rule 17Ad–17, Rule 17a–24, and

the related amendments to Rule 17Ad–

7 adopted today. A complete copy of the

FRFA may be obtained by contacting

Theodore Lazo, Attorney, Division of

Market Regulation, U.S. Securities and

Exchange Commission, 450 Fifth Street,

NW., Washington, DC 20549 at 202/

942–4187.

The FRFA explains both the need for

and the objectives of the rules adopted

by the Commission. As set forth in

greater detail in the FRFA, the adopted

rules with establish minimum standards

for all transfer agents with respect to

lost securityholders and may help the

Commission to monitor the

effectiveness of these standards. The

FRFA further explains that the

Commission believes that imposing an

affirmative obligation on transfer agents

to search for lost securityholders is in

the public interest and will enhance

investor protection.

The FRFA also (i) summarizes the

significant issues raised by public

comments in response to the

Commission’s Initial Regulatory

Flexibility Analysis (‘‘IRFA’’), (ii)

summarizes the Commission’s

assessment of such issues, and (iii)

states any changes made in the

proposed rules as a result of such

comments. As noted in the FRFA, none

of the comment letters received related

directly to the IRFA, but seven

commenters supplied data on the costs

of proposed Rule 17Ad–17.30 As

discussed in the FRFA, the Commission

believes that most of this cost data is

overstated because it includes costs not

created by the rule. The Commission

also believes that the revisions to

proposed Rule 17Ad–17 (e.g., the

extended time frames for conducting

searches and the exceptions to the

search requirements) will eliminate any

excess costs of compliance with the rule

that commenters contended would

arise. The FRFA also notes that Rule
52234 Federal Register / Vol. 62, No. 194 / Tuesday, October 7, 1997 / Rules and Regulations

31The Commission understands that small

transfer agents tend to provide services to issuers

with smaller prices per share. On occasion, when

shareholders sell their positions, they fail to

completely close out their account. As a result, they

may leave an account holding only a few shares or

the most recent dividend payment. Because a few

shares of a smaller issuer is more likely to be under

the de minimis amount than a few shares of a larger

issuer, the Commission believes that the de minimis

exception may be more beneficial to small transfer

agents. Some large transfer agents also have stated

that because it is more cost efficient to search for

all of their lost securityholders than to segregate out

the small accounts, they probably will not use the

exemption.

32 15 U.S.C. 78w(a)(2).

33 15 U.S.C. 78c.

34Pub. L. 104–290, section 106, 110 Stat. 3416

(1996).

17a–24 has been revised to minimize

the costs to all transfer agents.

The FRFA also provides a description

of and an estimate of the number of

small entities to which the rule will

apply. The FRFA states that the

Commission estimates that 413

registered transfer agents qualify as

‘‘small entities’’ and will be subject to

the requirements of the rule.

As required by the RFA, the FRFA

describes the projected reporting,

recordkeeping, and other compliance

requirements of the rule and includes as

estimate of the classes of small entities

that will be subject to the requirements

and the type of professional skills

necessary for preparation of the reports

or records. As discussed above, Rule

17Ad–17 does not require any specific

type of recordkeeping other than that

which is necessary to demonstrate

compliance with the rule, including

establishing written procedures with

respect to compliance with the rule. The

FRFA states that the Commission

believes that Rule 17Ad–17 as adopted

provides sufficient flexibility for all

transfer agents, including transfer agents

which are small entities, to maintain

records in the most cost-effective

manner. The FRFA also states that the

Rule 17a–24 as adopted will require

transfer agents to report aggregate data

regarding their lost securityholder

accounts and that the Commission

believes that such records will be

readily available to transfer agents.

The FRFA also describes the steps the

Commission has taken to minimize the

significant economic impact on small

entities consistent with the stated

objectives of applicable statutes (e.g.,

alternative standards for small entities).

As discussed further in the FRFA, the

Commission has amended proposed

Rule 17Ad–17 to provide additional

flexibility to all transfer agents,

including smaller transfer agents. In

addition, the Commission has attempted

to devise the most reasonable and

simplest approach that would afford

transfer agents as affective means to

reduce the number of lost

securityholders. The FRFA further

explains that the Commission requested

comment on the adoption of a

requirement that transfer agents use

search techniques based on their

periodic assessment or a requirement

that transfer agents’ search procedures

meet a performance based standard. In

light of the comments received on the

issue, the Commission is not adopting a

periodic assessment requirement or a

performance based standard. However,

the Commission has revised the

proposed rule to permit transfer agents

to use any combination of services to

local lost securityholders that provides

a comparable result to an information

data base.

As detailed in the FRFA, the

Commission has decided not to create

an exception to Rule 17Ad–17 for small

entities. The FRFA explains that the

Commission believes that any increased

costs incurred by small entities because

of the rule will be reasonable and are

justified by the necessity to ensure that

all securityholders receive the same

level of investor protection. While the

Commission has decided not to create

an exception to the rule for small

entities, the adopted rule does provide

a de minimis exception for lost

securityholders whose accounts hold

assets of less than $25. The Commission

believes that small transfer agents will

likely rely on the de minimis exception

more than large transfer agents.31

With respect to Rule 17a–24, the

FRFA notes that the Commission has

amended the proposed rule to reduce

the reporting burden on all transfer

agents and to minimize the compexity

and operational burden of the

requirements. Finally, the Commission

states that any increased costs are

justified by the need to monitor the

effectiveness of Rule 17Ad–17.

Based on the analysis contained in the

FRFA, the Commission believes that the

adopted rules will not adversely affect

small entities and include sufficient

regulatory flexibility for compliance to

minimize the impact on small entities.

The FRFA is available for public

inspection in File No. S7–21–96, and a

copy may be obtained by contacting

Theodore Lazo, U.S. Securities and

Exchange Commission, 450 Fifth Street,

NW, Mail Stop 5–1, Washington, DC

20549.

IV. Costs and Benefits of the Rules and

Their Effects on Competition,

Efficiency, and Capital Formation

Section 23(a)(2) of the Exchange

Act 32 requires the Commission, in

adopting rules under the Exchange Act,

to consider the competitive effects of

such rules and to make a determination

whether any burden on competition is

necessary or appropriate in furthering

the purposes of the Exchange Act.

Furthermore, section 3 of the Exchange

Act 33 as amended by the recently

enacted National Securities Markets

Improvement Act of 1996 (‘‘Markets

Improvement Act’’) 34 provides that

whenever the Commission is engaged in

rulemaking and is required to consider

or determine whether an action is

necessary or appropriate in the public

interest, the Commission also shall

consider, in addition to the protection of

investors, whether the action will

promote efficiency, competition, and

capital formation.

The Commission has considered Rule

17Ad–17 and Rule 17a–24 in light of the

standards cited in sections 3 and

23(a)(2) of the Exchange Act and

believes that for the reasons stated

herein, the adoption of the rules will (i)

promote efficiency for securityholder

recordkeeping by subjecting all transfer

agents to the same flexible rules

governing searches for lost

securityholders and reporting

information to the Commission related

to such searches, (ii) not adversely affect

capital formation because it relates

solely to post-issuance activity, and (iii)

not impose any burden on competition

not necessary or appropriate in

furtherance of the Exchange Act.

In the Proposing Release, the

Commission stated its view that the

proposed Rule 17Ad–17 would not have

a significant impact on transfer agent

competition. All transfer agents will be

subject to the same specified minimum

standard for reasonable care in

attempting to locate securityholders

with whom contact has been lost. As

discussed below, the cost of compliance

with the proposed rule is minimal, and

for many transfer agents that currently

conduct securityholder searches using

an information data base, the proposed

rule will impose no additional cost.

Because a transfer agent’s cost of

compliance generally is based upon the

number of securityholders it must

attempt to locate, transfer agents,

regardless of their size, should incur

comparable relative costs in exercising

comparable care. On average,

compliance costs should be roughly

proportional to the number of

securityholder records maintained by

the transfer agent.

One commenter stated that the rule as

proposed could have an anticompetitive

effect because the costs could cause

additional transfer agents to abandon an
Federal Register / Vol. 62, No. 194 / Tuesday, October 7, 1997 / Rules and Regulations 52235

35The commenter’s estimates include the cost of

the data base search itself plus such items as system

processing expenses to generate the search and to

receive the matched file from the data base vendor;

printing and mailing expenses; handling and other

related charges for returned items; and expenses for

replacement of uncashed checks and lost securities.

36The estimate of $4.75 is based on postage, data

base charges, and an increase in processing staff by

two full time positions. Currently, this commenter

conducts periodic searches for its lost

securityholders.

37Some transfer agents currently attempt to locate

lost securityholders, but the extent and type of

efforts used vary greatly among transfer agents. In

some cases, transfer agents forward the names of

lost securityholders directly to professional search

firms, in which case the securityholder must pay a

fee to regain its assets. In other cases, the transfer

agent searches for lost securityholders only if the

search are authorized and paid for by the issuer.

38The data cited in this paragraph is based on a

limited informal survey of several large transfer

agents.

39The Commission staff contacted several

transfer agents to obtain an estimated success rate.

Only one of the transfer agents contacted currently

uses data base searches to find lost securityholders.

That transfer agent, which has been conducting

searches on a monthly basis for over a year, stated

that its success rate using data base searches is

never less than 75% and sometimes is as high as

94%. For purposes of the cost-benefit analysis, the

Commission is assuming a 60% success rate in

order to be conservative.

40One commenter stated that the per account cost

could be as high as $12.00. However, as discussed

above, the Commission believes that this estimate

includes many costs not created by the rule. Also,

as noted above, the Division of Market Regulation

estimates the average cost of data base searches

required by the rule will total only $3.38 per

account in the first year and $1.79 per account in

the following years.

already contracting market. However,

this commenter did not provide any

detail as to the burden created by the

rule or why such burden should

disproportionately affect certain transfer

agents. The Commission believes that

the rule as adopted has been drafted so

as to provide the maximum flexibility to

transfer agents to meet their obligations

in the most cost-effective manner

possible. After careful consideration of

the commenter’s views, the Commission

has determined that Rule 17Ad–17 will

not impose any burden on competition

not necessary or appropriate in

furtherance of the Exchange Act.

In the Proposing Release, the

Commission estimated compliance costs

to the industry of approximately

$750,000, based on an estimated cost of

$3.00 per account and a total estimated

250,000 lost securityholder accounts.

Based on more recent data obtained

from several large transfer agents, the

Commission has revised its cost

estimate per account to $3.38 the first

year and $1.79 per account in the

following years. Significantly, based on

its most recent information, the

Commission now believes that there

may be as many as 3 million lost

securityholder accounts. Due primarily

to this change in estimated lost

securityholder accounts, the

Commission’s revised estimate of the

aggregate costs to the industry are one

time compliance costs of $4.6 million

and annual compliance costs of $5.2

million.

The Commission received seven

comment letters that provided specific

cost estimates. One commenter

estimates (assuming one search and

match) that the cost of locating an

account will be approximately $6.00,

which includes out-of-pocket postage,

staff, and computer time. A second

commenter states that vendor prices for

data base searches may vary widely and

that the actual cost per account will

range from $5.00 to $12.00.35 A third

commenter estimates an aggregate cost

of as much as $4.75 for each lost

securityholder and total initial

programming costs of $150,000.36 Two

commenters estimate that charges from

firms for data base searches range from

$2.00 per account to approximately

$1.00 per account for tape files. Another

commenter anticipates that the costs of

complying with the rule will exceed

$100,000 in additional labor costs

together with software and hardware

costs each year. Another commenter

estimates that the cost per account for

using an information data base ranges

from less than $.10 when using a CD

ROM to as much as $1.70 to use a third

party vendor data base.

The Commission believes that the

estimates higher than the Commission’s

estimate of $3.38 per lost account

overstate the costs involved because the

figures include expenses not related to

the rule or which are required already

as a part of the transfer agent’s duties

(e.g., the cost of shareholder mailings).

Furthermore, the Commission believes

that compliance with the rule as it is

being adopted will not require transfer

agents to incur any substantial costs

with respect to additional labor,

hardware, or software because the rule’s

requirements regarding coding

securityholders as lost are consistent

with current state escheatment laws.

Such state laws also require transfer

agents to be able to produce information

on lost securityholders for annual filings

with the state, and therefore transfer

agents’ computer systems currently

should be capable of producing lists of

lost securityholders to provide to the

data bases. Thus, the Commission

believes that transfer agents’ current

computer systems should not require

significant changes in order to comply

with the rule.

Further, the Commission has

amended the proposal so as to lower the

cost of compliance with the rule. For

example, the Commission has created a

de minimis exception to the rule

because searches for accounts with

lesser values would not produce as great

a benefit (i.e., the cost of locating such

securityholders would be a much larger

percentage of the assets to be returned).

In addition, the Commission has

amended the rule to be more consistent

with current state law requirements by

eliminating the requirement that three

months elapse between two mailings

prior to coding a securityholder as lost.

Accordingly, the Commission is

retaining its estimate of $3.38 per

account in the first year and $1.79 per

account in the following years.

The Commission believes that the cost

of the rule will be outweighed by its

benefits. The rule will create a uniform

standard applicable to all transfer agents

thus ensuring that all investors have the

opportunity to the reunited with their

assets.37 In addition, the rule will

guarantee that transfer agents make at

least two attempts to locate lost

securityholders before forwarding

names to a search firm that may result

in substantial charges to the

securityholder. Thus, the rule should

help investors recover a greater

percentage of their assets.

Based on comments received, the

Commission believes that the number of

lost securityholders compared to total

accounts held by transfer agents is

small, approximately 1.34%. However,

the actual dollar amount of those assets

can be significant. The Commission

believes that the total value of assets

held in accounts coded as ‘‘lost’’ may in

fact exceed $450 million.38

The Commission believes that Rule

17Ad–17 mandates a cost-effective

means for locating lost securityholders.

Because of the de minimis exception,

transfer agents are not required to search

for lost securityholders unless their

accounts are worth $25 or more. The

Commission believes that the rate of

success for data base searches is at least

60%.39 Thus, even if every account of

lost securityholders was worth only $25,

the rule would provide an average

benefit of $15 per lost securityholder

account (i.e., 60% of $25). This

estimated benefit is larger than any

commenter’s estimate of the per account

cost of data base searches.40

Futhermore, because the value of many

accounts will exceed $25, the

Commission expects that the actual

benefit will be higher.

The Commission has considered the

substantial likely benefits that investors
52236 Federal Register / Vol. 62, No. 194 / Tuesday, October 7, 1997 / Rules and Regulations

41Transfer agents must record which of their

securityholders are lost and the date that such

securityholders become lost in order to comply

with state escheatment laws.

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

43Rule 17Ad–7 was previously submitted to

OMB, which approved the rule and assigned the

following control number 3235–0136.

44 44 U.S.C. 3507.

45U.S.C. 552.

46 5 U.S.C. 552a.

will receive from adoption of the rule

and the additional cost the rule will

impose on transfer agents. The

Commission has decided to adopt the

rule given the lack of consistent

standards currently in effect with

respect to lost securityholders and the

relatively minor cost per account

imposed by the rule. In consideration of

cost, the Commission has designed the

final rule to give transfer agents

maximum flexibility to comply with the

rule’s requirements and to minimize

their search and recordkeeping

expenses.

Rule 17a–24 as adopted differs from

the proposed rule. Because the adopted

rule requires that information be

reported on a form that all transfer

agents subject to the rule are required to

file, the rule should not create an

additional filing burden. In addition, the

information that the reporting transfer

agents must file should be currently

available to such transfer agents.41 Thus,

because the rule should not create any

significant costs to transfer agents, the

Commission has determined that Rule

17a–24 will not impose any burden on

competition not necessary or

appropriate in furtherance of the

Exchange Act.

In addition, the Commission believes

that the benefits of the rule justify the

costs. The benefits of the rule are to

provide the Commission with

information to determine whether

transfer agents are more successful in

locating lost securityholders and,

therefore, whether Rule 17Ad–17 is

effective. The costs of compliance with

Rule 17a–24 should be limited to the

costs involved in compiling the

information required to be reported

once a year.

V. Paperwork Reduction Act

As set forth in the Proposing Release,

Rule 17Ad–17 and Rule 17a–24 contain

collections of information within the

meaning of the Paperwork Reduction

Act of 1995 (‘‘PRA’’).42 Accordingly, the

collection of information requirements

contained in the rules and related

amendments were submitted to the

Office of Management and Budget

(‘‘OMB’’) for review and were approved

by OMB which assigned the following

control numbers: Rule 17Ad–17, control

number 3235–0469; and Rule 17a–24,

control number 3235–0470.43 The

collection of information requirements

are in accordance with Section 3507 of

the PRA.44 An agency may not conduct

or sponsor and a person is not required

to respond to a collection of information

unless the agency displays a valid OMB

control number.

The collections of information under

Rule 17Ad–17, Rule 17a–24, and Rule

17Ad–7 are mandatory. As described in

more detail above and in the Proposing

Release, the collections of information

are necessary to enable recordkeeping

transfer agents, as the usual custodians

of the records that determine the

ownership of securities and the

entitlement to corporate distributions, to

reduce significantly the number of lost

securityholders and for the Commission

to monitor compliance with the rule.

The Commission may review this

information during periodic

examinations or with respect to

investigations. The records required to

be filed with the Commission and any

records required to be kept pursuant to

these rules that are requested by and

submitted to the Commission will be

kept confidential to the extent permitted

by the Freedom of Information Act 45

and the Privacy Act of 1974.46

Based upon further review of the

disclosure and recordkeeping changes

required by Rule 17Ad–7, the

Commission is retaining its burden

estimates for the collection of

information under that rule. Thus, the

description and estimated burden of the

collection of information requirement

under Rule 17Ad–7 have not changed

and are set forth in the Proposing

Release.

Originally, the Commission estimated

compliance costs of Rule 17Ad–17 to

the industry of approximately $750,000,

based on an estimated cost of $3.00 per

account and a total estimated 250,000

lost securityholder accounts. Based on

comments received questioning the

Commission’s original burden estimate,

the Commission obtained more recent

data from several large transfer agents.

As a result, the Commission has revised

its cost estimate per account to $3.38 the

first year and $1.79 per account in the

following years. Significantly, based on

its most recent information, the

Commission now believes that there

may be as many as 3 million lost

securityholder accounts. Due primarily

to this change in estimated lost

securityholder accounts, the

Commission’s revised estimate of the

aggregate costs to the industry are one

time compliance costs of $4.6 million

and annual compliance costs of $5.2

million.

Due to the changes in Rule 17a–24 as

adopted and the corresponding changes

on Form TA–2, the Commission will be

resubmitting its collection of

information requirement to OMB for

review and approval.

VI. Statutory Basis

Pursuant to section 17A(d)(1) of the

Exchange Act, 15 U.S.C. 78a–1(d)(1), the

Commission amends Rule 17Ad–7 and

Form TA–2 and adopts Rule 17Ad–17

and Rule 17a–24 in Chapter II of Title

17 of the Code of Federal Regulations.

List of Subjects in 17 CFR Parts 240 and

249

Reporting and recordkeeping

requirements; Securities; Transfer

agents.

Text of the Amendments

For the reasons set out in the

preamble, the Commission amends Title

17, Chapter II of the Code of Federal

Regulations to read as follows:

PART 240—GENERAL RULES AND

REGULATIONS, SECURITIES

EXCHANGE ACT OF 1934

1. The authority citation for part 240

continues to read in part as follows:

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

77s, 77z–2, 77eee, 77ggg, 77nnn, 77sss, 77ttt,

78c, 78d, 78f, 78i, 78j, 78k, 78k–l, 781, 78m,

78n, 78o, 78p, 78q, 78s, 78u–5, 78w, 78x,

78ll(d), 79q, 79t, 80a–20, 80a–23, 80a–29,

80a–37, 80b–3, 80b–4 and 80b–11, unless

otherwise noted.

* * * * *

2. By adding § 240.17a–24 to read as

follows:

§ 240.17a–24 Reports of lost

securityholders.

(a) Each recordkeeping transfer agent

shall file with the Commission on Form

TA–2 (17 CFR 249b.102) the following

aggregate information with respect to

lost securityholder accounts contained

on such transfer agent’s master

securityholder files:

(1) The total number of lost

securityholder accounts and the

percentage of lost securityholder

accounts compared to total number of

accounts contained on the transfer

agent’s master securityholder files.

(2) The information required by

paragraph (a)(1) of this section shall be

provided separately for securityholders

lost one year or less, three years or less,

five years or less, and more than five

years and for securityholders whose

assets which have escheated to

unclaimed property administrators

within the last calendar year.
Federal Register / Vol. 62, No. 194 / Tuesday, October 7, 1997 / Rules and Regulations 52237

(b) For purpose of this section, lost

securityholder means a securityholder:

(1) To whom an item of

correspondence that was sent to the

securityholder at the address contained

in the transfer agent’s master

securityholder file has been returned as

undeliverable; provided, however, that

if such item is re-sent within one month

to the lost securityholder, the transfer

agent may deem the securityholder to be

a lost securityholder as of the day the resent item is returned as undeliverable

and

(2) For whom the transfer agent has

not received information regarding the

securityholder’s new address.

3. Section 240.17Ad–7 is amended by

adding paragraph (i) to read as follows:

§ 240.17Ad–7 Record retention.

* * * * *

(i) The records required by

§ 240.17Ad–17(c) shall be maintained

for a period of not less than three years,

the first year in an easily accessible

place.

4. Section 240.17Ad–17 is added to

read as follows:

§ 240.17Ad–17 Transfer agents’ obligation

to search for lost securityholders.

(a)(1) Every recordkeeping transfer

agent whose master securityholder file

includes accounts of lost

securityholders shall exercise

reasonable care to ascertain the correct

addresses of such securityholders. In

exercising reasonable care to ascertain

for its master securityholder file such

lost securityholders’ current addresses,

each recordkeeping transfer agent shall

conduct two data base searches using at

least one information data base service.

The transfer agent shall search by

taxpayer identification number or by

name if a search based on taxpayer

identification number is not reasonably

likely to locate the securityholder. Such

data base searches must be conducted

without charge to a lost securityholder

and with the following frequency:

(i) Between three and twelve months

of such securityholder becoming a lost

securityholder and

(ii) Between six and twelve months

after the transfer agent’s first search for

such lost securityholder.

(2) A transfer agent may not use a

search method or service to establish

contact with lost securityholders that

results in a charge to a lost

securityholder prior to completing the

searches set forth in paragraph (a)(1) of

this section.

(3) A transfer agent need not conduct

the searches set forth in paragraph (a)(1)

of this section for a lost securityholder

if:

(i) It has received documentation that

such securityholder is decreased or

(ii) The aggregate value of assets listed

in the lost securityholder and all

securities owned by the lost

securityholder as recorded in the

transfer agent’s master securityholder

files, is less than $25; or

(iii) The securityholder is not a

natural person.

(b) For purposes of this section:

(1) Information data base service

means either:

(i) Any automated data base service

that contains addresses from the entire

United States geographic area, contains

the names of at least 50% of the United

States geographic area, contains the

names of at least 50% of the United

States adult population, is indexed by

taxpayer identification number or name,

and is updated at least four times a year;

or

(ii) Any service or combination of

services which produces results

comparable to those of the service

described in paragraph (b)(1)(i) of this

section in locating lost securityholders.

(2) Lost securityholder means a

securityholder:

(i) To whom an item of

correspondence that was sent to the

securityholder at the address contained

in the transfer agent’s master

securityholder file has been returned as

undeliverable; provided, however, that

if such item is re-sent within one month

to the lost securityholder, the transfer

agent may deem the securityholder to be

a lost securityholder as of the day the

resent item is returned as undeliverable;

and

(ii) For whom the transfer agent has

not received information regarding the

securityholder’s new address.

(c) Every recordkeeping transfer agent

shall maintain records to demonstrate

compliance with the requirements set

forth in this section which shall include

written procedures which describe the

transfer agent’s methodology for

complying with this section.

PART 249b—FURTHER FORMS,

SECURITIES EXCHANGE ACT OF 1934

5. The authority citation for part 249b

continues to read in part as follows:

Authority: 15 U.S.C. 78a, et seq., unless

otherwise noted;

* * * * *

Note: Form TA–2 does not and the

amendments will not appear in the Code of

Federal Regulations.

§ 249b.102 [Form TA–2 Amended]

6. Form TA–2 (referenced in

§ 249b.102) is amended by adding

paragraph 8 to Instruction I.A. to read as

follows:

Form TA–2

* * * * *

I. General Instruction for Filing and

Amending Form TA–2.

A. * * *

8. ‘‘Lost securityholder’’ is defined in

Rule 17a–24(b)(1) (17 CFR 240.17a–

24(b)(1)).

* * * * *

§ 249b.102 [Form TA–2 Amended]

7. Form TA–2 (referenced in

§ 249b.102) is amended by adding

paragraph c to Question 4 to read as

follows:

Form TA–2

* * * * *

4. * * *

c. (i) Number of lost securityholder

accounts and (ii) percentage of total

accounts represented by lost

securityholder accounts as of June 30

for:

Accounts of securityholders lost one year or

less: llllllllllllllllll

Accounts of securityholders lost three years

or less: lllllllllllllllll

Accounts of securityholders lost five years or

less: llllllllllllllllll

Accounts of securityholders lost more than

five years: llllllllllllllll

Accounts of securityholders which have

escheated to states within the year ended

June 30: lllllllllllllllll

* * * * *

Dated: October 1, 1997.

By the Commission.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–26519 Filed 10–6–97; 8:45 am]

BILLING CODE 8010–01–M

DEPARTMENT OF HEALTH AND

HUMAN SERVICES

Food and Drug Administration

21 CFR Parts 20, 310, 312, 314, and 600

[Docket No. 93N–0181]

RIN 0910–AA97

Expedited Safety Reporting

Requirements for Human Drug and

Biological Products

AGENCY: Food and Drug Administration,

HHS.

ACTION: Final rule.

SUMMARY: The Food and Drug

Administration (FDA) is amending its

expedited safety reporting regulations

for human drug and biological products

to provide consistency with the

elements of FDA Form 3500A for use in

pre- and postmarketing safety reporting;