PRA 17Ad-3(b) justification 2014

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

A.

Justification

1.

Information Collection Necessity

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, subsections 17(a)(1) and (3) of the Act require every registered transfer agent to
file reports as the Commission or other appropriate regulatory agencies (“ARAs”)
prescribe by rule 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, 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) to alert the issuers when their transfer
agents fail 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 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 17Ad2(b). The transfer agent is required to send the notice within twenty business days after
the close of the second month to the chief executive officer of each issuer for which such
registered transfer agent acts.

2
2.

Information Collection Purpose and Use

The issuer uses the information contained in the notices to: (1) provide an early
warning to the registered transfer agent and the issuer of the transfer agent’s noncompliance with the Commission’s minimum performance standards regarding registered
transfer agents; and (2) 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

With regard to Rule 17Ad-3(b), the Commission consistently has consulted with
persons outside the agency. The rule was published for public comment and the
Commission commonly consults with other regulatory bodies that have indirect or direct
regulatory authority over the persons or entities affected by Rule 17Ad-3(b).
9.

Payment or Gift

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

No questions of a sensitive nature are asked. The information collection does not
collect any Personally Identifiable Information (PII).
12.

Information Collection Burden

The estimated annual cost to respondents is minimal. The Commission receives
approximately eight to twelve notices annually 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
by the Commission.
This third party disclosure requirement will take each respondent approximately
one hour to complete, for a total annual burden of two hours. The Commission estimates
an internal labor costs of approximately $60.00 an hour. 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.

Approval to Omit OMB Approval Date

The Commission is not seeking approval to omit the expiration date.
18.

Exceptions to Certification for Paperwork Reduction Act Submissions

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.