2011 17Ad-6 and 7 Justifications[1]

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for
“Rules 17Ad-6 and 17Ad-7”
A. JUSTIFICATION
1. Necessity of Information Collection
As a result of the paperwork crisis that occurred in the late 1960s, during which the number of
securities transactions exceeded the securities industry's capacity to process those transactions,
Congress enacted the Securities Acts Amendments of 1975.1 In order to establish a national
system for the prompt and accurate clearance and settlement of securities transactions, Congress
provided for a scheme of regulation with respect to the business of being a transfer agent. Those
amendments to the Securities Exchange Act of 1934 (“Exchange Act”) require transfer agents to
meet minimum standards, as established by the Commission, in furtherance of the purposes of
the Exchange Act and generally, to protect investors.
Transfer agents play an integral role in the national system for the clearance and settlement of
securities transactions. Transfer agents cancel certificates presented for transfer, issue new
certificates to the transferee and record the change of record ownership of securities on the
issuer’s securityholder records. They also prepare, maintain and certify securityholder records,
disburse dividend and interest payments and mail security-owner communications such as proxy
material and annual reports to shareholders.
To the extent transfer agents fail to perform their activities promptly, accurately and safely, the
entire clearance, settlement and transfer process suffers. Moreover, substandard performance by
transfer agents can affect the accuracy of an issuer's securityholder records and interrupt the
channels of communication between issuers and securityholders. Thus, substandard performance
by transfer agents can adversely affect issuers, broker-dealers, banks, other financial
intermediaries, the investing public and the securities markets.
Based on experience in the operation of the transfer agent regulatory program, the Commission
adopted Rules 17Ad-6 and 17Ad-7, which require registered transfer agents to make and keep
current certain records such as: (1) specific operational data regarding the time taken to perform
transfer agent activities (to ensure compliance with the minimum performance standards in Rule
17Ad-2 (17 CFR 240.17Ad-2)); (2) written inquiries and requests by shareholders and brokerdealers and response time thereto; (3) resolutions, contracts or other supporting documents
concerning the appointment or termination of the transfer agent; (4) stop orders or notices of
adverse claims to the securities; and (5) all canceled registered securities certificates.
2. Purpose and Use of the Information Collection
Rules 17Ad-6 and 17Ad-7 were designed to accomplish two purposes. First, the recordkeeping
requirements ensure that all registered transfer agents are maintaining the records necessary to
monitor and keep adequate control over their own performance. Second, the recordkeeping
1

Pub. L. No. 94-29, 89 Stat. 97 (June 4, 1975).

requirements allow the examination of registered transfer agents on an historical basis for
compliance with applicable rules.
3. Consideration Given to Information Technology
Rules 17Ad-6 and 17Ad-7 do not state how information must be recorded but only state that
certain information needed to determine a transfer agent’s compliance with the applicable rules
must be recorded. Therefore, improved information technology does not affect the transfer
agent’s recordkeeping requirements.
4. Duplication
When Rules 17Ad-6 and 17Ad-7 were promulgated, the Commission consulted with other
appropriate regulatory agencies (“ARA”) (i.e., the Board of Governors of the Federal Reserve
System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the
Currency) to prevent multiple recordkeeping requirements among the various ARAs. No other
reporting requirement with respect to the information required to be reported under the Rule
currently exists.
5. Effect on Small Entities
Small transfer agents are exempt under Rule 17Ad-4(b) (17 CFR 240.17Ad-4(b)) from many of
the recordkeeping requirements of Rules 17Ad-6 and 17Ad-7. The recordkeeping requirements
imposed on these small entities are the minimal recordkeeping requirements needed to
adequately fulfill their most basic duty to transfer securities and do not create any significant
burden.
6. Consequences of Not Conducting Collection
The records that must be made or retained under Rules 17Ad-6 and 17Ad-7 require regular
updating because of the relationship between a transfer agent’s function and the securities market
(i.e., the on-going, daily transfer of record ownership of securities resulting from continuous
trading activity in the market). Preparation and retention of these records are essential to
establish record ownership of securities and to operate successfully as a registered transfer agent.
Less frequent reporting under the Rules would allow transfer agents experiencing operational
difficulty to continue operating in such a manner, with a potential for further operational
deterioration without informing the appropriate regulatory agencies. Such a situation would
greatly increase risks to public investors and to the national system for clearance and settlement
of securities transactions.
7. Inconsistencies with Guidelines in 5 CFR 1320.8(d)
There are no special circumstances. This collection is consistent with the guidelines in 5 CFR
1320.5(d).

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
There were no payments or gifts to respondents.
10. Confidentiality
The information required by Rules 17Ad-6 and 17Ad-7 is maintained in the possession of the
registered transfer agents. Under Section 17(b) of the Exchange Act, the Commission and other
ARAs have access to the records for inspection and examination purposes and, in appropriate
circumstances, for investigations.
11. Sensitive Questions
No questions of a sensitive nature are asked.
12. Burden of Information Collection
The time required to administer the retention of the necessary information varies from each
transfer agent depending on the size and nature of the transfer agent’s operation. In addition,
some records are made on a daily basis, while other records must be made only once. The
Commission estimates that, on average, each of the approximately 473 registered transfer agents
spends approximately 500 hours per year are storing and retaining these records. The aggregate
annual burden on all 473 transfer agents registered with the Commission as of November 1,
2011, is thus approximately 236,500 hours per year.
While not a cost burden under Item 13, below, the Commission estimates that the 500 hours per
year per transfer agent translate to an internal cost of compliance of $25,000 per year ($50 per
hour). Therefore, the aggregate annual cost of compliance for the approximately 473 transfer
agents is approximately $11,825,000. These estimates have been computed according to the
guidelines set forth in GSA Guide to Estimating Reporting Costs (1973).
13. Costs to Respondents
The collections of information required by Rules 17Ad-6 and 17Ad-7 do not impose any cost
burdens, as defined by the Paperwork Reduction Act, on transfer agents.
14. Costs to Federal Government
The rules do not impose any direct costs on the government because they are recordkeeping
rules. However, the Commission staff spends approximately 347 staff days or 2,776 hours per

year inspecting transfer agent records to ensure compliance with Rules 17Ad-6 and 17Ad-7.
During FY 2011 operational costs to the Commission concerning Rules 17Ad-6 and 17Ad-7 will
total approximately $138,800 based on an average hourly cost of $50. This figure is based on
our computation of the value of staff time devoted to this activity and the related overhead
valued at 35% of the value of staff time.
15. Changes in Burden
The total annual cost burden has been reduced from $15,000,000 to $$11,825,000 and the total
annual hourly burden has been reduced from 300,000 hours to 236,500 hours to reflect the
decrease in the number of transfer agents that are registered with the Commission.
16. Information Collection Planned for Statistical Purposes
Not applicable. The information collection is not used for statistical purposes.
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 for Paperwork Reduction Act Submissions
This collection complies with the requirements in 5 CFR 1320.9.
B. COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS
This collection does not involve statistical methods.