DGL REVISED 2022 Rule 17Ad-11 PRA Supporting Statement 2022 02 28

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for
Rule 17Ad-11
OMB Control No. 3235-0274
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 established a regulatory scheme for the transfer agent business. Those amendments to
the Securities Exchange Act of 1934 (the “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 issuers’ securityholder records. Transfer agents also prepare, maintain, and certify
securityholder records; disburse dividend and interest payments; and mail securityholder
communications, such as proxy materials 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. Substandard performance by
transfer agents can affect the accuracy of an issuer’s securityholder records, which in turn could
interrupt the channels of communication between issuers and shareowners. Moreover, the
absence of adequate internal accounting controls in the operation of transfer agents and
procedures for the safeguarding of funds and securities in the possession or control of transfer
agents can provide the opportunity for significant financial loss to securityholders, issuers,
financial intermediaries, and securities depositories.
In 1983, the Commission adopted Rule 17Ad-11 to require every registered
recordkeeping transfer agent to report certain information to issuers and its appropriate
regulatory agency when the aggregate market value of an “aged record difference” exceeds
certain thresholds. A “record difference” occurs when either: (1) the total number of shares or
total principal dollar amount of securities in the master securityholder file maintained by the
transfer agent does not equal the number of shares or principal dollar amount authorized and
issued by the issuer; or (2) the security transferred or redeemed contains certificate detail
1

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

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different from the certificate detail currently on the master securityholder file. An “aged record
difference” is a record difference that has existed for more than 30 calendar days. In addition,
the rule requires every registered recordkeeping transfer agent to report certain information to
issuers and its appropriate regulatory agency concerning buy-ins of all issuers for which it acts as
recordkeeping transfer agent. Further, the rule requires every registered recordkeeping transfer
agent to report to its appropriate regulatory agency in the event of a failure to post certificate
detail to the master securityholder file within five business days of the time required by Rule
17Ad-10. Transfer agents must also maintain a copy of any report required under Rule 17Ad-11
for a period of not less than three years from the date of the report, the first year in an easily
accessible place.
The purposes of Rule 17Ad-11 are: (1) to provide issuers with the information necessary
to make informed decisions about whether the transfer agent is performing its recordkeeping
functions in a satisfactory manner and whether the amount of aged record differences is
sufficiently serious to be material and, therefore, require disclosure to securityholders; and (2) to
provide regulatory authorities with information concerning the source and extent of aged record
differences and information regarding transfer agents that are experiencing difficulties in
creating and maintaining securityholder records.
The reports required by Rule 17Ad-11, in conjunction with transfer agent reports required
under Rule 17Ad-2 (notices of noncompliance with the turnaround and processing performance
standards), provide regulatory authorities with information regarding those transfer agents who
are not performing their functions promptly or accurately. Under Rule 17Ad-11, however, the
appropriate regulatory agencies are only informed when a dollar value threshold is breached.
When this occurs, regulatory authorities can focus their attention on those transfer agents whose
performance may represent potential harm to investors or a threat to the smooth operation of the
national system for clearance and settlement.
The Commission adopted Rule 17Ad-11 pursuant to authority under Sections 17, 17A,
and 23(a) of the Exchange Act. 2
2.

Purpose and Use of Information Collection

The reports required to be submitted by transfer agents to issuers under Rule 17Ad-11 are
used by issuers to determine whether and what corrective action is necessary to resolve the
operational difficulties disclosed by the transfer agent performing functions for the issuer’s
securities. The reports required to be submitted by transfer agents to their appropriate regulatory
agencies under Rule 17Ad-11 are used by such agencies to fulfill their regulatory and oversight
responsibilities. Without this information, regulatory authorities would not be informed as to
those transfer agents who are not performing their functions promptly and accurately. Transfer
agents that are not properly performing their operations pose potential harm to investors who
depend on an efficient operation of the national system of clearance and settlement.
2

15 U.S.C. 78q, 78q-1, and 78w(a).

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3.

Consideration Given to Information Technology

Most transfer agent processing systems are automated, which enables transfer agents to
easily identify when reports must be made pursuant to Rule 17Ad-11. There are no legal or
technical obstacles that, if removed, would reduce burdens.
4.

Duplication

There is no duplication of the information that the Commission obtains pursuant to Rule
17Ad-11.
5.

Effect on Small Entities

The information required by Rule 17Ad-11 is already available to transfer agents and, as
such, any collection burden for small entities is minimal.
6.

Consequences of Not Conducting Collection

Commission staff believes that the information collected under Rule 17Ad-11 is
necessary to ensure that issuers and appropriate regulatory agencies are informed of transfer
agents who are not performing their functions promptly and accurately. The absence of transfer
agent reporting under Rule 17Ad-11 would allow transfer agents experiencing operational
difficulty and financial liability to continue operating in such a manner, with a potential for
further operational deterioration, without informing issuers or the appropriate regulatory
agencies. Such a situation would greatly increase risks to public investors and to the national
system for clearance and settlement.
7.

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

There are no special circumstances. This collection is consistent with the guidelines in 5
CFR 1320.5(d)(2).
8.

Consultations Outside 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

Not applicable. No payments or gifts have been provided to respondents in connection
with this collection of information.

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10.

Confidentiality

No assurance of confidentiality is provided to respondents.
11.

Sensitive Questions

The information collection does not collect any personally identifiable information. The
agency has determined that neither a PIA nor a SORN are required in connection with the
collection of information.
12.

Information Collection Burden

Based on a review of the number of Rule 17Ad-11 reports the Commission, the
Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the
Federal Deposit Insurance Corporation (collectively, the “appropriate regulatory agencies”)
received since 2015, the Commission staff estimates that 8 transfer agent respondents will file a
total of approximately 10 reports annually. The Commission staff estimates that, on average, a
report can be prepared and submitted by compliance clerical staff in 30 minutes. As a result, the
total annual time burden to the entire transfer agent industry is approximately 5 hours (0.5 hours
x 10 reports). Assuming an average hourly rate of $72 for a compliance staff employee at a
transfer agent, 3 the Commission staff estimates that the total internal cost of compliance for each
report is $36. 4 Therefore, the total annual internal cost of compliance for the estimated 8
respondents is approximately $360. 5
Rule

Burden
Type

Number of
Annual
Responses

Time Per
Response
(Hours)

Total
Annual
Burden
(Hours)

Rule 17Ad-11

Periodic
Reporting

10

0.5

5

Total Aggregate Burden

5

3

The $72 per hour figure for a compliance clerk is from SIFMA’s Office Salaries in the
Securities Industry 2013, modified by Commission staff to account for an 1,800-hour work-year
and inflation, and multiplied by 2.93 to account for bonuses, firm size, employee benefits, and
overhead.
4

0.5 hours per report x $72 per hour = $36 total internal cost of each report.

5

$36 per report x 10 reports per year = $360 total annual internal cost for 8 respondents.

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13.

Costs to Respondents

Not applicable. Respondents will not incur any capital or start-up costs or any ongoing
operation and maintenance costs.
14.

Costs to the Federal Government

None. The time required to review Rule 17Ad-11 reports is minimal and accomplished
by existing staff as part of their regular duties.
15.

Changes in Burden

None.
16.

Information Collection Planned for Statistical Purposes

Not applicable. The information collection is not used for statistical purposes.
17.

Approval to Omit OMB Expiration Date

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

Exceptions to Certification for Paperwork Reduction Act Submissions

Not applicable. 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.

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