2022 17Ad-17 Supporting Statement

2022 17Ad-17 Supporting Statement.pdf

Rule 17a-25, Electronic Submission of Securities Trading Data by Exchange Members, Brokers, and Dealers.

OMB: 3235-0540

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SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Rule 17Ad-17
OMB Control No. 3235-0469

A.

JUSTIFICATION

1.

Information Collection Necessity

In response to the “paperwork crisis” that occurred in the late 1960s when the number of
securities transactions exceeded the securities industry’s capacity to process those transactions,
Congress enacted the Securities Acts Amendments of 1975.1 This amendment added a new
Section 17A to the Securities Exchange Act of 1934 (“Exchange Act”), which directed the
Commission to establish a national system for the prompt and accurate clearance and settlement
of securities transactions. This included a new regulatory system for the transfer agent industry
by requiring transfer agents to meet minimum performance standards as established by the
Commission in furtherance of the purposes of the Exchange Act.
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 that transfer agents fail to perform their activities promptly and accurately, the
entire clearance, settlement, and transfer process suffers. For example, substandard performance
by transfer agents can affect the accuracy of an issuer’s securityholder records and therefore
could disrupt communication between issuers and securityholder. Moreover, poor performance
by transfer agents could systemically affect issuers, broker-dealers, banks, other financial
intermediaries, the investing public, and the securities markets.
The Commission adopted Rule 17Ad-17 in 1997 pursuant to authority under Section 17A of the
Exchange Act in order to enhance the accuracy of transfer agents’ records. The rule required,
among other things, transfer agents make two searches for the correct address of lost
securityholders using an information database service without charge to the lost securityholders.
In 2013, the Commission issued amendments to Rule 17Ad-17 pursuant to Section 929W of the
Dodd-Frank Wall Street Reform and Consumer Protection Act.
2.

Information Collection Purpose and Use

The purpose of Rule 17Ad-17 as amended is to reduce the number of lost securityholders and
unresponsive payees by (1) requiring certain transfer agents, brokers and dealers to conduct
1

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

searches and (2) requiring paying agents, including carrying firms, transfer agents, indenture
trustees, custodians, and approximately 10% of issuers, to provide notification to unresponsive
payees. In addition, the rule also requires a mandatory “collection of information” that requires
covered entities to maintain records in order to comply with and to demonstrate compliance with
the rule. Such records must be maintained for a period of not less than three years with the first
year in an easily accessible place. The Commission reviews this information to test for
compliance. The collection of information is necessary to enable covered entities, as custodians
of records that determine the ownership of securities and the entitlement to corporate
distributions, to reduce the number of lost and missing securityholders.
3.

Consideration Given to Information Technology

Covered entities have the option to deliver the names of the lost securityholders to third party
database vendors (who use that information to conduct the search for the lost securityholders) by
electronic, tape, or paper submissions.
4.

Duplication

No other reporting requirement currently exists with respect to the information required to be
reported under the rule.
5.

Effect on Small Entities

A high proportion of paying agent services are performed by large brokers and dealers and by
transfer agents that perform such services. These firms are not typically small businesses as
defined in Exchange Act Rule 0-10(c).
6.

Consequences of Not Conducting Collection

If the information is collected less frequently, investors are deprived of their assets for longer
periods of time and the searches are less likely to result in a corrected address.
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 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

The collection of information does not provide any payment or gift to respondents.

10.

Confidentiality

This rule does not involve the collection of confidential information.
11.

Sensitive Questions

The information collection does not collect personally identifiable information. Any
information collected under this rule is collected and maintained by a third party. The agency
has determined that neither a PIA nor a SORN are required in connection with the collection of
information.
12.

Information Collection Burden

The Commission staff estimates that there are a total of 496 entities (169 broker-dealers and 327
transfer agents, or “searching entities”) that are subject to the requirement to conduct searches and
3,113 paying agents subject to the requirement to provide notification. We are assuming for the
purposes of Rule 17Ad-17 that, on an annual basis, there are approximately 2,205,766 searches by
searching entities and approximately 778,250 notifications by paying agents. The annual burden for
searches is approximately 183,813 hours (2,205,766 x 5 minutes per search) and the annual burden
for paying agent notifications is approximately 38,913 (778,250 x 3 minutes per notification). In
addition, there will be an approximate recordkeeping burden of 5,968 hours (4,411 for searching
entities and 1,557 hours for paying agents), based on an estimation of one hour for every 500 lost
securityholder accounts and one hour for every 500 unresponsive payee accounts, or 2,205,760
divided by 500 times one hour and 778,250 divided by 500 times one hour. The Aggregate annual
burden is thus approximately 228,694 hours (183,813 + 38,913 + 5,968).
Rule

Burden
Type

Number of
Respondents

Number of
Annual
Searches by
broker-dealers
or notifications
by paying
agents

Time Per
Response
(Hours)

Total
Burden Per
Burden
Type
(Hours)

Rule 17Ad-17 (lost
securityholders and
unresponsive payees):
searching entities
Rule 17Ad-17 (lost
securityholders and
unresponsive payees):
paying agents
Rule 17Ad-17 (lost
securityholders and
unresponsive payees):
recordkeeping
requirements
Total Aggregate Burden

Reporting

496

2,205,766

5 minutes

183,813

Third Party
Notification

3,113

778,250

3 minutes

38,913

Record
Keeping

3,609

2,984,016

.002 hours

5,968

228,694
hours

13.

Costs to Respondents

For purposes of this Supporting Statement, the primary cost incurred by covered entities to
comply with Rule 17Ad-17 consists of a fee paid to third party data base providers that will
search for the missing securityholders. Based on information provided by the industry, we
estimate this fee to be approximately $3 per search. Therefore, the total cost for all covered
entities is approximately $6,617,298 (2,205,766 searches times $3).
14.

Costs to Federal Government

Rule 17Ad-17 does not require covered entities to submit anything to the federal government. As
previously stated, the Commission examines transfer agents, brokers, and dealers for their
compliance with this rule. Since the cost to examine these entities consists solely of normal fulltime employee labor costs, the cost to the federal government for purposes of this Supporting
Statement is zero.
15.

Changes in Burden

The increase in the burden estimate is due to an increase in the number of paying agents from
2,705 to 3,113.
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.

COLLECTION OF INFORMATION EMPLOYING STATISTICAL METHODS

This collection does not involve statistical methods.


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