PRA 17Ad-3(b) justification 2011

SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Rule 17Ad-3(b)

A.

Justification

1.

Necessity of Information Collection

As a result of the “paperwork crisis” that occurred in the late 1960’s during which
the number of securities transactions exceeded the securities industry’s capacity to
process those transactions, Congress enacted the Securities Acts Amendments of 1975.
To facilitate the establishment of a national system for the prompt and accurate clearance
and settlement of securities transactions, Congress established a scheme of regulation to
ensure that the transfer agents who process securities certificates meet the statutory goal.
Those amendments to the Securities Exchange Act of 1934 (“Act”) and the rules
thereunder require transfer agents to meet minimum performance and recordkeeping
standards designed to protect the public interest and investors.
Section 17A(d)(1)(A) of the Act, in general, prohibits any registered agent from
engaging in any transfer agent activity in contravention of such rules and regulations as
the Commission may prescribe as necessary or appropriate in the public interest, for the
protection of investors, or otherwise in furtherance of the purposes of the Act. In
addition, subsection 17(a)(1) and (3) of the Act, in essence, require every registered
transfer agent to file reports as the Commission or other appropriate regulatory agencies
(“ARAs”) as defined in section 3(a)(34)(B) of the Act for the transfer agent, by rule,
prescribe as necessary or appropriate in furtherance of the purposes of the Act.
In order to provide an early warning system designed to alert the ARA that a
registered transfer agent is not meeting the performance standards set forth in the
Commission’s rules regarding registered transfer agents, the Commission pursuant to
sections 2, 17, 17A, and 23(a) of the Act, 15 U.S.C. 78b, 78q, 78q-1, and 78w(a), adopted
rules 17Ad-2(c), (d), and (h) on June 16, 1978. Rules 17Ad-2(a), (d), and (h) enable
those agencies to take timely preventive and remedial measures to protect the public
interest and investors. Similarly, the Commission also adopted Rule 17Ad-3(b) in order
to provide issuers with the same or similar early warning system designed to alert the
issuer of their transfer agent’s failure to meet the minimum performance standards set
forth in the Commission’s rules.
Rule 17Ad-3(b) requires a registered transfer agent to send a copy of the notice
required pursuant to Rule 17Ad-2(c), (d), and (h) to all the issuers for whom that transfer
agent acts when for each of two consecutive months the transfer agent has failed to
turnaround at least 75% of all routine items in accordance with the requirements of Rule
17Ad-2(a) or to process at least 75% of all items in accordance with the requirements of
Rule 17Ad-2(b). The transfer agent is required to send the notice within twenty business

2
days after the close of the second month to the chief executive officer of each issuer for
which such registered transfer agent acts.
2.

Purpose and Use of the Information Collection

The issuer uses the information contained in the notices in several ways: (1) to
provide an early warning to the registered transfer agent and the issuer of the transfer
agent’s non-compliance with the Commission’s minimum performance standards
regarding registered transfer agents; and (2) to assure that issuers are aware of certain
problems and poor performances with respect to the transfer agents that are servicing the
issuer’s issues. If the issuer does not receive notice of a registered transfer agent’s failure
to comply with the Commission’s minimum performance standards, then the issuer will
be unable to take remedial action to correct the problem or to find another registered
transfer agent. The Commission may also use this information in its examination and
inspection program.
3.

Consideration Given to Information Technology

The notice may be sent electronically or through a delivery service. Given the
low volume of notices sent to issuers, the Commission does not contemplate specifying
the use of any particular electronic system.
4.

Duplication

There is no duplication of information.
5.

Effect on Small Entities

For purposes of the Regulatory Flexibility Act, a transfer agent is considered a
small business or entity if it: (i) receives less than 500 items for transfer and less than 500
items for processing during the preceding six months; (ii) transfers items only of issuers
that would be deemed small businesses or small organizations; (iii) maintains master
shareholder files that in the aggregate contained less than 1,000 shareholder accounts or
was the named transfer agent for less than 1,000 shareholder accounts at all times during
the preceding fiscal year; and (iv) is not affiliated with any person that is not a small
business or small organization. These transfer agents are exempt from the provisions of
Rule 17Ad-3(b).
6.

Consequences of Not Conducting Collection

If the information were not collected or collected less frequently, effective
regulation of transfer agent conduct and activity would not be possible. Specifically, the
transfer agent rules and regulations are designed to assure the continuous prompt
processing of securities presented for transfer. If this information is provided less often,
issuers could not properly assure that transfer agents promptly process all securities
presented for transfer.

3

7.

Inconsistencies with Guidelines in 5 CFR 1320.5(d)(2)

There are no special circumstances. The collection is not conducted in a manner
inconsistent with 5 CFR 1320.6.
8.

Consultations Outside the Agency

The required Federal Register notice with a 60-day comment period soliciting
comments on this collection of information was published. No public comments were
received.
9.

Payment or Gift to Respondents

Not applicable. There is no payment or gift provided to respondents.
10.

Confidentiality

The Commission has no control over the confidentiality of the notice required to
be sent to the registered transfer agent’s issuers.
11.

Sensitive Questions

Not applicable; such information is not collected.
12.

Burden of Information Collection

The estimated annual cost to respondents is minimal. The Commission receives
annually approximately eight to twelve notices from registered transfer agents pursuant
to Rule 17Ad-2(c), (d), and (h). Pursuant to Rule 17Ad-3(b), a transfer agent that has
already filed a Notice of Non-Compliance with the Commission pursuant to Rule 17Ad2 will only be required to send a copy of that notice to issuers for whom it processes
when that transfer agent fails to turnaround 75% of all routine items or to process 75%
of all items. The Commission estimates that of the transfer agents that file the Notice of
Non-Compliance, only two agents will meet the requirements of Rule 17Ad-3(b), and
such transfer agents are simply sending a copy of a form that had already been processed
of the Commission.
This third party disclosure requirement will take each respondent approximately
one hour to complete, for a total annual estimate burden of two hours. The Commission
estimates a cost of approximately $60.00 for each hour, which consists only of internal
labor costs. Therefore, each year transfer agents spend approximately two hours and
$120.00 complying with the provisions of the rule.

4
13.

Costs to Respondents

Not applicable: (a) it is not anticipated that respondents will have to incur any
capital and start up cost to comply with the rule, and (b) it is not anticipated that the
respondents will have to incur any additional operational or maintenance cost (other than
provided for in item no. 12) to comply with the rule.
14.

Cost to Federal Government

Not applicable. The notice requirement under the rule is a third party notice.
15.

Changes in Burden

There are no changes in the burden.
16.

Information Collections Planned for Statistical Purposes

Not applicable. The notice required under the rule is a third party notice.
17.

Display of OMB Approval Date

The Commission is not seeking approval to not display the expiration date for
OMB approval.
18.

Exceptions to Certification

This collection complies with the requirements in 5 CFR 1320.9.
B.

Collection of Information Employing Statistical Methods
The collection of information does not involve statistical method.