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Trust Examination Manual

Section 11 - Transfer Agent Operations

Introduction

Transfer agent operations consist of the fundamental services provided by transfer agents to issuers of securities and those that hold those securities.  Registered transfer agents transfer recorded ownership of securities (e.g. when securities are originally issues and when an investor sells a security to another investor); maintain books and records evidencing ownership of securities; report to the Security Information Center securities that have been reported as loss, missing, stolen, or the finding or recovery of securities previously reported as lost, missing or stolen; and answer inquiries concerning the status of securities presented to the transfer agent for transfer.

As transfer agent for registered securities, a registered transfer agent's performance of these and other duties is governed by Section 240.17Ad of the SEC's General Rules and Regulations, as well as other SEC rules governing the reporting of lost, missing or stolen securities and the fingerprinting of transfer agent personnel.  Compliance with SEC rules and regulations is an absolute requirement for every registered transfer agent.  A registered transfer agent that fails to operate in compliance with SEC rules and regulations risks the revocation or suspension of its registration, as well as fines and penalties imposed as a result of such non-compliance.  Sanctions can be imposed upon a registered transfer agent by the SEC and by the transfer agent's Federal bank regulator.

In this section, the specific SEC operational requirements governing a registered transfer agent's performance are discussed in detail.  In particular, the SEC operational guidelines governing the maintenance and retention of certain records relating to transfer agent operations, turnaround performance standards for both transferring certificates or replying to inquiries concerning pending transfers are discussed in detail. 

Certain definitions are key in understanding the SEC's operational requirements. These definitions are discussed below in detail, prior to proceeding to the materials regarding recordkeeping and turnaround performance.

Definitions

Registered transfer agents are required to maintain various records with respect to the "items" that they receive for transfer.  In addition, transfer agents must distinguish "items" according to whether they are "routine" or "non-routine."  Transfer agent records must indicate when "items" were "made available" to the "presentor" of an "item."  Therefore, the following key definitions are given and discussed in detail before preceding to the recordkeeping and record retention requirements.  These, along with other key terms are defined in Section 17Ad-1, "Definitions."

Item

Each of the following is defined as an item:

  • A certificate or certificates of the same issue of securities that are presented for transfer and covered by one ticket;
  • An instruction to a transfer agent holding securities registered in the name of the presentor to make available (see definition below) all or a portion of securities covered by a single ticket is an item; 
  • If no ticket is presented, then the certificate or certificates of the same issue of securities presented by one presentor is considered an item;
  • Each line on a "deposit shipment control list" (see definition below) or a "withdrawal shipment control list" (see definition below) submitted by a registered clearing agency;
  • Each certificate to be countersigned, in the case of an outside registrar.

The term "item," and the use of the word "securities" in defining the term "item," refers to all securities for which a transfer agent performs transfer agent functions, regardless of whether the securities are qualifying securities as defined in Section 17A(c)(1) of the Securities Exchange Act.

The definition of "item" defines two general categories of "items."

  • An "item" exists if the certificates are:

    • of the same issue of securities;

    • covered by one ticket or, if there is no ticket, presented by one presentor; and

    • presented for transfer (see discussion below concerning when an "item" is presented for transfer)

It is important to note that when a certificate is involved, that the certificate must be presented in order for an "item" to have been received.  Hence, the request to replace a lost certificate is not an "item" since no certificate was presented for transfer. Also, since shares of open-end mutual funds do not involve certificates, transfers of open-end mutual funds do not constitute an "item," with the exception of those cases when a certificate is involved in the transfer of the mutual fund shares.

  • An "item" exists if an instruction requests a transfer agent:

    • that holds securities registered in the name of the presentor;

    • to transfer or make available (see definition below);

    • all or a portion of the securities held in its possession or custody

    An instruction to issue a stock dividend out of previously authorized but unissued shares would not constitute an "item" since the securities would not be registered in the name of the presentor, in this case the issuer. Similarly, shares issued pursuant to a stock purchase plan are not "items" if the shares are original issue securities.  If treasury share are used, however, the instruction would then involve securities held by the transfer agent and held in the name of the presentor.  In this case, such an instruction would constitute an "item."

    For example, a shipment control list containing instructions from a depository to a transfer agent holding, under a transfer agent custodian or other arrangement, a balance certificate registered in the name of the depository's nominee to withdraw by transfer under the Fast Automated Securities Transfer ("FAST") program some of those securities and to make them available to the depository would constitute an "item."

There is no maximum number of certificates of the same issuer which may be presented for transfer at a single time and still be considered a single "item."  Regardless of the number of certificates, as long as all of the certificates are of the same issue and covered by either 1 ticket, or if there is no ticket, presented by 1presentor, the certificates constitute a single "item."  For example, if a transfer agent receives 5 certificates from 1 broker under 1 transmittal letter requesting that the total amount of shares be transferred to 10 shareholders in 20 separate certificates, there would be only 1 "item" as long as the certificates are all of the same issue, since there is only 1 presentor.  On the other hand, if a presentor includes securities of 9 different issues under a single ticket there would be 9 "items" presented.

When there is no ticket, each time a certificate, or certificates, of the same issue of securities are presented for transfer at the same time by the same presentor, one "item" has been presented for transfer.  However, if certificates of the same issue of securities are presented at different times, each time a certificate or certificates is presented an "item" has been received.  Certificates presented at different times of the day must not be aggregated as one "item," even though all certificates are of the same issue of securities and even though the same person was the presentor.

Routine/Non-routine

An "item" is routine if it does not:

  • require requisitioning certificates of an issue for which the transfer agent, under the terms of its agency, does not maintain a supply of certificates; [Note: If the transfer agent is required to maintain a supply of certificates, but exhausts its supply, it may not designate the "item" as non-routine as a result of exhausting its supply of certificates.]

  • include a certificate as to which the transfer agent has received notice of a stop order, adverse claim or any other restriction on transfer;

  • require any additional certificates, documentation, instructions, assignments, guarantees, endorsements, explanations or opinions of counsel before transfer may be effected;

  • require review of supporting documentation other than assignments, endorsements or stock powers, certified corporate resolutions, signature or other common and ordinary guarantees or appropriate tax or tax waivers; [Note: "Items" referred to counsel for review are not automatically considered non-routine. Only if counsel is required to review documentation other common and ordinary assignments, endorsements, etc. would the "item" be non-routine.]

  • involve a transfer in connection with a reorganization, tender offer, exchange, redemption or liquidation;

  • include a warrant, right or convertible security presented for transfer of record ownership within five business days before any day upon which exercise or conversion privileges lapse or change;

  • include a warrant, right or convertible security presented for exercise or conversion; or

  • include a security of an issue which within the previous 15 business days was offered to the public pursuant to a registration statement effective under the Securities Act of 1933, in an offering not of a continuing nature. [Note: The 15 day business period begins from the closing date of the public offering, i.e. the date on which the securities are delivered to the underwriter for the issue.]

Any "item" that is not routine, i.e. meets one of the conditions enumerated above, is a non-routine "item."  The decision to designate an "item" as routine or non-routine must be made as soon as the "item" has been reviewed upon receipt at the transfer agent's premises.  Once an "item" has been designated as routine, the "item" generally retains that classification throughout the completion of turnaround.  An otherwise routine "item" does not become non-routine by virtue of internal delays in the turnaround of the "item."  Similarly, the designation of an "item" as non-routine remains throughout the turnaround of an "item."

Examples of "items" that would qualify as non-routine:

  • The transfer agent, as trustee and authenticating agent for the bond, must forward the bond, pursuant to the Indenture Agreement, to the issuer for signature by an officer before the certificate can be made available to the presentor

  • The transfer agent receives an instruction from the issuer to use treasury shares, registered in the name of the issuer and being held by the transfer agent, under the issuer's stock purchase plan and an authorization letter from the issuer is required before the transfer can be effected

  • The transfer agent retains "items" received for transfer pending receipt of payment of transfer fees rather than returning them to the presentor for nonpayment

Deposit Shipment Control List

A deposit shipment control list is a list of transfer instructions that accompanies certificates to be cancelled and reissued in the nominee name of a registered clearing agency.

Withdrawal shipment control list

A withdrawal shipment control list is a list of instructions, either in paper or electronic form, that:

  • Directs the issuance of certificates in the names of persons or entities other than the registered transfer agent; and

  • accompanies certificates to be cancelled which are registered in the nominee name of a registered clearing agency, or directs the transfer agent to reduce certificate or position balances maintained by the transfer agent on behalf of a registered clearing agency under that clearing agency's transfer agent custody program.

Note: If a Deposit or Withdrawal Shipment Control List contains both routine and non-routine transfer instructions, the transfer agent has the option of:

  • Retaining all the transfer instructions listed on the shipment control list and treating each line on the list as a routine item; or

  • Promptly returning to the registered clearing agency the control list line or lines containing non-routine transfer instructions and treating the retained transfer instructions as routine "items."  A copy of the shipment control list, an explanation for the returned instructions and all routine transfer instructions reflected on the same line or lines should be returned to the registered clearing agency.

Made available

An "item" is made available when:

  • In the case of an "item" for which there is not an outside registrar, or when the "item" has been received from the outside registrar after processing, the transfer agent dispatches or mails the "item" to, or the "item" is awaiting pickup by the presentor, or a person designated by the presentor; or

  • When there is an outside registrar, the transfer agent dispatches or mails the "item" to, or the "item" is awaiting pick-up by the outside registrar; or

  • In the case when the outside registrar has completed processing, the outside registrar dispatches or mails the "item" to, or the "item" is awaiting pick-up by, the presenting transfer agent.

An "item" is considered dispatched when it leaves the premises where the transfer agent functions are performed and is sent to the receiving party or to a location from which it is picked up by the receiving party.  An "item" is considered mailed either when it is delivered to a location from which it is collected by the U.S. Postal Service or when it is being delivered to the U.S. Postal Service.  For example, if the "item" is delivered to the transfer agent's mail room and the U.S. Postal Service makes daily pick-ups, the "item" would be considered mailed when it is delivered to the transfer agent's mail room.

Transfer

Per Rule 17Ad-1(d) there are essentially two methods of effecting a "transfer."  (1) "The "transfer" of an "item" is accomplished when, in accordance with the presentor's instructions, all acts necessary to cancel the certificate or certificates presented for transfer and issue a new certificate or certificates, including the performance of the registrar function, are completed and the "item" is made available to the presentor by the transfer agent, or (2) when, in accordance with the presentor's instructions, a transfer agent which holds securities registered in the name of the presentor completes all acts necessary to issue a new certificate or certificates representing all or a portion of those securities and makes available the certificate or certificates to the presentor or, with respect to those of record ownership to be accomplished without the physical issuance of certificates, completes registration of change in ownership of all or a portion of those securities."

Process

The term "process" pertains to an outside registrar.  An outside registrar has processed an "item" when all the acts necessary to perform the registrar function and to make available to the presenting transfer agent the completed certificate or certificates or to advise the presenting transfer agent, orally or in writing, why performance of the registrar function is delayed or may not be completed.

Federal securities laws do not prohibit a single transfer agent from performing the functions of both transfer agent and registrar, nor do Federal securities laws require an issuer to engage two separate entities to perform the transfer agent and registrar functions.  This matter is largely governed by state law.  However, various national securities exchanges may require separate entities.

Receipt

The receipt of an "item" or a written inquiry occurs when the "item" or written inquiry or request arrives at the premises at which the transfer agent performs transfer agent functions.  For the purposes of determining receipt of an "item" for transfer agent turnaround performance, "items" received on or before noon of a business day are deemed to have been received at noon on that day. "Items" received after noon on a business day or on a day that is not a business day are deemed to have been received at noon on the next business day.

An "item" or written inquiry is considered received when it arrives in the mail room at or connected to the premises where transfer agent functions are performed.  However, if an "item" or written inquiry arrives in the mail room that is not located at, or connected to the premises where transfer agent functions are performed, it is not deemed to have been received. Rule 17Ad-2(f),however, requires that a transfer agent that receives "items" at locations other than the premises where transfer agent functions are performed have procedures to assure, and does assure, that "items" are promptly forwarded to the premises where transfer agent functions are performed.

Where a "named transfer agent" for an issues contracts with a service bureau, which is also a registered transfer agent, to transfer certificates and maintain securityholder records, receipt of an "item" occurs when the "item" arrives at the service bureau's premises.  In such a case, however, the named transfer agent must comply with the requirement to promptly forward "items" to the service bureau.

Business day

A "business day" is any day during which the transfer agent is normally open for business and excludes Saturdays, Sundays and legal holidays or other holidays normally observed by the transfer agent.  Days when, because of severe inclement weather, city government and other businesses are forced to close down, virtually all forms of transportation are unavailable and ordinary commerce is suspended, but a transfer agent opens its transfer department with a skeleton staff would not be considered a business day.  Similarly, days when businesses are requested or required to close by order of a city, municipal or state government would not be considered business days. 

Exempt transfer agents

Certain transfer agents that transfer a relatively low volume of "items" benefit from having to satisfy a reduced number of SEC operational rules.  These transfer agents are referred to a "exempt transfer agents," although they are also often referred to as "small transfer agents."  Eligibility requirements for "exempt transfer agent status" are defined in Rule 17Ad-4(b).  An exempt transfer agent is a transfer agent than:

  • During any consecutive six months receives fewer than 500 "items" for transfer or fewer than 500 "items" for processing; and
  • If its appropriate regulatory agency is the SEC or the OCC, prepares and maintains in its possession a document certifying that the transfer agent qualifies as an "exempt transfer agent"; or
  • If its appropriate regulatory agency is the Federal Reserve or the FDIC, file with its appropriate regulatory agency a notice certifying that it qualifies as an "exempt transfer agent."

The certification that the transfer agent qualifies as an "exempt" transfer agent must be made within the first ten business days following the close of the sixth month of the consecutive six-month period in question.

The consecutive six month period is a floating period for which at the beginning of each month the number of "items" transferred or processed during the previous six months must be calculated to ensure that the transfer agent remains eligible for "exempt transfer agent" status.  Rule 17Ad-4(c) requires that the calculation be performed within five business days following the close of each month. Although the SEC regulations do not state that the calculation of "items" transferred or processed must be documented and retained for a specified period of time, an "exempt transfer agent" must be able to demonstrate that it meets the eligibility requirements for "exempt" status. Thus, a registered transfer agent should document the results of each month's calculation of "items" transferred or processed in the prior six months and retain the documentation on file for a sufficient period of time in order to demonstrate eligibility. 

If an "exempt transfer agent" transfers or processes more than 500 "items" in any consecutive six-month period, it must prepare a document stating that it no longer qualifies for "exempt" status.  If the transfer agent's appropriate regulatory agency is the SEC or the OCC, the transfer agent must maintain the document in its possession.  If the transfer agent's appropriate regulatory agency is the Federal Reserve or the FDIC, the transfer agent must send a written notice of the loss of "exempt" status to its appropriate regulatory agency.  As of the first day of the month following the month in which the transfer agent determined that it had transferred or processed greater than 500 "items" the transfer agent is no longer an "exempt transfer agent" and must satisfy all applicable SEC operating requirements.  The transfer agent can not again qualify for "exempt" status until it has transferred or processed fewer than 500 "items" during a consecutive six-month period beginning in the month when it stopped being an "exempt transfer agent."  A transfer agent that loses "exempt" status must make a new certification when it again become eligible for "exempt" status.

A transfer agent can qualify as an "exempt transfer agent" when it performs transfer agent activities for some issues and processes "items" as an outside registrar for other issues.  In such cases, the transfer agent must transfer less than 500 "items" and process fewer than 500 "items."  A transfer agent for an issue or issues could qualify for "exempt" status even though the outside registrar for such issue or issues does not qualify for "exempt" status.  An "item" with respect to an outside registrar is defined as each certificate to be countersigned, whereas an item with respect to a transfer agent is a certificate or certificates of the same issue of securities covered by one ticket, or if there is no ticket, presented by one presentor.  So, the outside registrar could receive 500 or more "items" for processing while the presenting transfer agent receives fewer than 500 "items" for transfer.

The SEC has opined that a new transfer agent may qualify as an "exempt transfer agent even though it has not performed transfer agent functions for the requisite six month period.  A new transfer agent can qualify as an "exempt transfer agent" provided it can demonstrate, through appropriate records and documentation, that the previous transfer agent received fewer than 500 "items" for transfer and fewer than 500 "items" for processing during the immediately preceding consecutive six-month period.

For the purposes of determining if a transfer agent qualifies for "exempt" status, all "items" transferred within all areas of the institution must be counted, including non-qualifying securities. Securities transferred in satellite or branch offices must be aggregated with "items" transferred at the main premises where transfer agent functions are performed. A transfer agent may not combine several "items" of the same issue received from several presentors in order to keep the number of "items" transferred under 500.  Certificates of the same issue presented by different presentors must be treated as separate "items" as defined by Section 17Ad-1(a)(1).

Transfer agents are not required to elect "exempt" status.  For those institutions that are eligible for "exempt" status, but have not elected to declare themselves "exempt transfer agents", examiners should bring to management's attention the availability of "exempt transfer agent" status.  Examiners should not, either in written comments in the report of examination or in comments to management state or imply that the institution should or is obligated to elect to become an "exempt transfer agent." 

"Exempt transfer agents" benefit from reduced recordkeeping and securities transfer turnaround requirements.  "Exempt transfer agents" do not have to comply with the following SEC Rules:

  • 17Ad-2, "Turnaround, Processing and Forwarding of Items." "Exempt transfer agents" transfer agents do not have to comply with paragraphs (a), (b), (c), (d), and (h) which define turnaround standards for transfer agents and outside registrars, and the filing of required reports when those standards are not satisfied. Instead, "exempt transfer agent" turnaround performance is defined in 18Ad-2(e)(2), which requires a transfer agent exempt under Rule 17Ad-4(b) that has received 30 day notice of depository-eligibility of an issue for which it performs transfer agent functions to turnaround 90 percent of all routine items received during a month within five business days of receipt.  The "exempt transfer agent" must devote diligent and continuous attention to the remaining ten percent of routine "items" and must turnaround those "items" as soon as possible.  Note that Rule 17Ad-2(e)(1) requires that all non-routine "items" receive diligent and continuous attention and must be turned around as soon as possible.

  • 17Ad-3, "Limitations on Expansion." "Exempt transfer agents" that do not satisfy the 5-business day turnaround standard for routine "items" are not subject to the limitations on business expansion detailed in Rule 17Ad-3.

  • 17Ad-6, "Recordkeeping," "Exempt transfer agents" are not required to maintain the records required under the following paragraphs of Rule 17Ad-6(a):

    • 17Ad-6(a)(2) - Monthly Log

    • 17Ad-6(a)(3) - Daily and Monthly Log for Outside Registrars

    • 17Ad-6(a)(4) - A record of the calculations demonstrating the monitoring of transfer agent turnaround performance

    • 17Ad-6(a)(5) - A copy of written notices of failure to satisfy transfer or outside registrar turnaround performance. Refer to first bulleted item above.

    • 17Ad-6(a)(6) - Written copies of inquiries or requests concerning the status of "items" presented for transfer

    • 17Ad-6(a)(7) - Written log of inquiries and requests concerning the status of "items" presented for transfer

    • 17Ad-6(a)(11) - Documents upon which the transfer agent bases its determination that an "item" received for transfer was received in connection with a reorganization, tender offer, liquidation or conversion etc.

    In addition to the exemptions provided for in Rule 17Ad-(4)(b), "exempt transfer agents," with the exception of "exempt transfer agents that transfer registered mutual funds having 1,000 or more shareholders, are exempted from the annual study and evaluation of internal accounting controls (i.e. audit) required by Rule 17Ad-13.  Moreover, a transfer agent that receives fewer than 500 "items" for transfer or fewer than 500 "items" for processing during any consecutive six-month period and that performs transfer agent functions only for its own securities is not required to maintain the Notice Pursuant to SEC Rule 17f-2, "Fingerprinting of Securities Industry Personnel."  An "exempt transfer agent" that only transfers it own securities would qualify for the exemption in Rule 17f-2.

Turnaround performance

A registered transfer agent must carry out its securities transfer and processing activity in an timely and accurate manner.  Fundamental to the efficient processing of securities certificates is prompt turnaround of certificates presented for transfer and of instructions to make available securities registered in the name of the presentor but held by the transfer agent.  In order to protect the investing public from losses and other damages caused by unwarranted or prolonged delays in effecting the transfer of securities certificates or instructions to make registered securities available, the SEC promulgated rules establishing the timeframes in which registered transfer agents must turnaround "items" received.  SEC Rule 17Ad-2, effective October 3, 1977, set forth the timeframes in which transfer agents must turnaround "items" received for transfer and "items" received for processing by outside registrar.

In addition to SEC turnaround standards, securities industry self-regulatory organizations (SRO) may impose turnaround standards.  Most notably, both the New York Stock Exchange and the American Stock Exchange require transfer agents that effect transfers of securities listed on those exchanges to meet exchange established turnaround performance standards.  When a SRO imposes a more stringent standard, the SEC turnaround rules do not supersede the rules imposed by the SRO.

Failure to satisfy SEC turnaround standards is a serious matter.  As described in greater detail below, registered transfer agents that fail to meet the SEC turnaround standards are required to file reports with the SEC and with their appropriate regulatory agency; report the failure to the issuers of the securities for which they act as transfer agent, and under certain circumstances have limitations imposed on the expansion of transfer agent business.

Turnaround, Processing and Forwarding of "Items"

SEC Turnaround Requirements
Section 17Ad-2 of the SEC Rules and Regulations, "Turnaround, Processing and Forwarding of Items," establishes specific timeframes in which registered transfer agents must turnaround "items" presented for transfer.  The turnaround standards for transferring or processing "items" are as follows:

  • With the exception of "exempt" transfer agents, every registered transfer agent, except when acting as an outside registrar, must turnaround within three business days at least 90 percent of all routine "items" received for transfer during the month.  All routine "items" not turned around within three business days of receipt, i.e. the 10 percent not turned around within three business days, must be turned around promptly.  Note: The SEC has opined that, under usual circumstances, promptly means within one additional business day;

  • "Exempt transfer agents must turnaround within five business days at least 90 percent of all routine "items" received for transfer during the month. All routine "items" not turned around within five business days of receipt, i.e. the 10 percent of "items" not turned around within five business days must receive diligent and continuous attention by the transfer agent;

  • An outside registrar must process at least 90 percent of all "items" received during the month:

    • By the opening of business on the next business day, in the case of "items" received at or before noon on a business day; and

    • By noon of the next business day, in the case of "items" received after noon on a business day.

    • All routine "items" not turned around as required, i.e. the 10 percent not turned around by the beginning or noon of the next business day, must be turned around promptly. Note: The SEC has opined that, under usual circumstances, promptly means within one additional business day.

Note: For the purposes of turnaround performance, "items received" do not include "items" related to reorganizations, tender offers, exchanges, etc; warrants, rights or convertible securities presented for exercise or conversion; a security of an issue which within the previous 15 business days was offered to the public; or any "item" that is not accompanied by a debit or cancelled certificate.

  • All transfer agents are required to devote diligent and continuous attention to non-routine "items" and must turn around non-routine "items" as soon as possible. This is a flexible standard dependent on the facts and circumstances of each "item."

In addition to the established timeframes for turning around "items," transfer agents must maintain appropriate procedures in the following cases:

  • Registered transfer agents which receive "items" at locations other than the premises where transfer agent functions are performed must have procedures to assure that "items" are promptly forwarded to such premises; and

  • Registered transfer agents which received "items" processed by an outside registrar must have procedures to assure that "items" received from the outside registrar are promptly made available to the presentor.

When a named transfer agent contracts with a service bureau to perform transfer agent functions, an "item" is considered received when it arrives at the premises of the service bureau, even if the "item" is forwarded by the named transfer agent.  Both the named transfer agent and the service bureau must have appropriate procedures to assure that "items" are forwarded promptly.

Note: SEC Rule 17Ad-6(a)(4) requires registered transfer agents, with the exception of "exempt transfer agents," to keep a written record of calculations demonstrating the transfer agent's monitoring of its turnaround performance.  When turning around "items" and calculating its turnaround performance, the transfer agent must include "items" processed in all areas of the bank. In those case where a transfer agent has one or more branch or satellite locations, or where "items" are transferred or processed in other divisions and departments of the bank, the transfer agent must aggregate "items" received and turned around on an institution-wide basis. Rule 17Ad-6(a)(5) required the transfer agent to keep a copy of any written notices filed for failure to meet turnaround performance standards.

The SEC has opined that a registered transfer agent must continue to meet SEC turnaround requirements when converting from a batch to an on-line recordkeeping system.  The SEC noted that Rule 17Ad-6 requires recordkeeping to be current and noted that Rule 17Ad-2 provides transfer agents a 10 percent margin for turning around and processing "items."

Once a registered transfer agent's appointment has become effective, the transfer agent is obligated to meet the SEC turnaround standards.  Therefore, a transfer agent should not make its appointment effective until it has all shareholder records, stop files, unissued certificates, and other materials required to effect the transfer of or processing of an "item."

The SEC has opined that a transfer agent that uses an outside registrar can choose to calculate its turnaround performance as if it performed the registrar function.  In such a case, the transfer agent would record the date on which it receives an "item" and the date on which the "item" is made available to the presentor, rather than recording the date on which the "item" is made available to the outside registrar.  If the transfer agent makes such an election, the "item" must be turned around within three business days. Normally, when an outside registrar is used, the transfer agent has three business days to turn the "item" around, i.e. make it available to the outside registrar, and the outside registrar has one business day to process the "item," a process that would in total take four business days.  Under such an election, the transfer agent would maintain the records required under Rule 17Ad-6(a) showing the business day on which an "item" is received and the when the "item" was made available to the presentor, rather than when the "item" was made available to the outside registrar.  The SEC has stated that a transfer agent that elects to comply and calculate its turnaround performance as if the registrar function was performed in-house, must do so in a written undertaking that must be sent to the SEC, and, for those transfer agents for whom the SEC is not the appropriate regulatory agency, the transfer agent's appropriate regulatory agency.  The written undertaking must state that a failure to meet SEC turnaround standards will be charged to the transfer agent, regardless of whether the delays are caused by the transfer agent or by the outside registrar.

The SEC has also opined that 17Ad-2 does not provide for automatic exemptions for inclement weather or other acts of God. For example, in the event an airport is closed due to inclement weather, thereby preventing the delivery of "items" and resulting in a large quantity of "items" being received when the airport reopens.  In such a case, the transfer agent must meet the turnaround requirements even if an unusually large quantity of "items" is presented on a given day.

Exceptions from SEC Turnaround Performance
Turnaround requirements, as well as the required reports of failure to meet turnaround requirements and limitations on expansion discussed below, do not apply to:

  • Interests in limited partnerships;
  • Interests in dividend reinvestment programs; and
  • Redeemable securities of investment companies registered under Section 8 of the Investment Company Act, i.e. mutual funds
Failure to Meet Turnaround Standards

Required Reports
With the exception of an "exempt transfer agent," any registered transfer agent that fails to meet the SEC turnaround requirements in any month is required to file a written notice with the SEC, and, if the SEC is not the transfer agent's appropriate regulatory agency, with its appropriate regulatory authority.  The notice must be filed within ten business days following the end of the month in which the turnaround standards were not met. In the case of a registered transfer agent that is not an outside registrar, the written notice must contain the following information:

  • The number of routine "items" and the number of non-routine "items" received for transfer during the month;
  • The number of routine "items" which the transfer agent failed to turnaround within the requirements established by the SEC in Rule 17Ad-2. Note: This applies only to routine "items" received during the month in question;
  • The percentage of routine "items" that were not turned around as required by Rule 17Ad-2;
  • The number of routine "items," aged in increments of one business day, which as of the close of business on the last business day of the month have been in its possession for more than four business days and have not been turned around. Note: this applies to all routine "items" in the transfer agent's possession, regardless of the month in which they were received;
  • The reasons for the transfer agent's failure to meet SEC turnaround standards; and
  • The steps that have been, are being or will be taken to prevent a future failure to meet turnaround requirements.

In the case of a registered transfer agent that is an outside registrar, the written notice must contain the following information:

  • The number of "items" received for processing during the month;
  • The number of "items" which the transfer agent failed to process within the requirements established by the SEC in Rule 17Ad-2;
  • The percentage of "items" that were not turned around as required by Rule 17Ad-2;
  • The number of "items," aged in increments of one business day, which as of the close of business on the last business day of the month have been in its possession for more than the time allowed for processing and have not been turned around;
  • The reasons for the transfer agent's failure to meet SEC turnaround standards; and
  • The steps that have been, are being or will be taken to prevent a future failure to meet turnaround requirements.

Paragraph (h) of Rule 17Ad-2,lists the address of the SEC and of the respective appropriate regulatory agencies to which the required written notice should be mailed.

Limitations on Expansion and Other Required Reports
A registered transfer agent that has been required to file, pursuant to Rule 17Ad-2(c), a written notice of failure to meet turnaround performance standards for three consecutive months may not, for a period of three months, provided that the transfer agent is not required to file any further notices, beginning on the fifth business day following the third month in which the transfer agent failed to meet turnaround requirements:

  • Initiate the performance of any transfer agent function or activity for an issue for which the transfer agent does not perform, or is not under agreement to perform; and
  • For issues for which the transfer agent functions are currently being performed, initiate for such issue the performance of additional transfer agent functions or activities that are not currently being performed or for which the transfer agent is not currently under contract to perform.

A registered transfer agent which for two consecutive months fails to turnaround or process 75 percent of all routine "items" within the timeframes established by Rule 17Ad-2(a)and(b)is also subject to the above limitations and must send the chief executive office of each issuer for which it acts as registered transfer agent a copy of the written notice filed with the SEC and, if applicable, its appropriate regulatory agency.  The copy of the written notice must be sent within 20 days following the end of the second consecutive month in which fewer than 75 percent of routine "items" were processed within the required timeframes.

In addition to SEC turnaround requirements, both the New York Stock Exchange (NYSE) and the American Stock Exchange (AMEX) require transfer agents for securities list on their respective stock exchange to turnaround, under normal conditions, routine transfers within 48 hours.  See NYSE Rule 496 and AMEX Rule 891, discussed below.

Stock Exchange Turnaround and Operational Standards New York Stock Exchange (NYSE) Rule 496
The NYSE established performance requirements for transfer agents of NYSE listed securities.  The NYSE adopted Rule 496, "Requirements for Independent Agents Acting As or In Lieu of New York Transfer Agents of Securities Listed on the New York Stock Exchange, Inc." on June 24, 1971.  Thus the NYSE Rules predate the SEC transfer agent rules contained in Section 240.17Ad.  NYSE Rule 496 requires the following:

  1. Office satisfactory to the Exchange and the issuer to receive and redeliver securities must be located south of Chambers Street in the Borough of Manhattan, City of New York.
  2. Routine transfers are to be processed and available for pick-up at the office under normal conditions within 48 hours, i.e. if received before Noon on Monday must be available for pick-up not later than immediately after 1:00 P.M. on Wednesday.
  3. The Transfer Agent must assume total responsibility and liability for securities from the time of deposit at the office until redelivered at the window and the Transfer Agent must have capital, surplus (both capital and earned), undivided profits, and capital reserves aggregating at least $10,000,000.
  4. Out-of-town agents having a drop in New York must make appropriate arrangements to pick up from and deliver to the Central Certificate Service normally within the 48 hour period and framework mentioned above.
  5. Personnel at the office must have sufficient experience to respond promptly to inquiries regarding transfers, including legal items.
  6. Securities received before the close of business at the office on a record date or any other date involving the rights of a securityholder must be recorded as of that date so as to establish the transferee's rights.
  7. Facilities should be available for expediting transfer service when needed.  No objection will be made if a reasonable charge is made for such special service.
  8. Transfer Agents maintaining a New York office or drop must maintain insurance coverage of at least $25,000,000 to protect securities while in transit or in process.
  9. The Exchange reserves the right to request termination of the office in the event of the failure of a transfer agent to conform to all of the foregoing requirements.

NYSE Rule 496 imposes a more stringent turnaround standard on transfer agents of NYSE listed securities, 2 days instead of the 3 days mandated for non-exempt transfer agents.  Rule 496 imposes specific requirements on transfer agents for NYSE listed securities located outside New York City.

American Stock Exchange (AMEX) Rule 891
Like the NYSE, AMEX established performance requirements for transfer agents of AMEX listed securities before the adoption of the SEC's rules.  The AMEX adopted Rule 891 became effective on October 8, 1971.  AMEX Rule 891 is fairly similar to NYSE Rule 491.  AMEX Rule 891 requires the following:

  1. Office facilities satisfactory to the Exchange and the issuer to receive and redeliver securities must be located south of Chambers Street in the Borough of Manhattan, City of New York.

  2. Routine transfers are to be processed and available for pick-up at the office under normal conditions within 48 hours, e.g., if received before Noon on Monday must be available for pick-up not later than immediately after 1:00 P.M. on Wednesday.

  3. The Transfer Agent must assume total responsibility and liability for securities from the time of deposit at the office until redelivery at the window. The Transfer Agent must maintain insurance coverage of at least $10,000,000 to protect securities while in transit or in process of transfer, and it must be in a position to demonstrate that it has a substantial net worth. If the Transfer Agent does not have capital, surplus (both capital and earned), undivided profits and/or capital reserves aggregating at least $3,000,000, it will be required to furnish additional evidence of its ability to meet financial additional evidence of its ability to meet financial obligations and it may be required to maintain insurance coverage in excess of $10,000,000. In this regard, all relevant factors will be considered such as its past record of operations as a transfer agent, the experience of its management and supervisory personnel, its security and record-keeping procedures, the nature and scope of any other activities in which it is engaged and the amount of its capital in relation to its overall business activities.

  4. Out-of-town agents having a drop in New York must make appropriate arrangements to pick up from and deliver to the Central Certificate Service normally within the 48 hour period and framework mentioned above.

  5. Personnel at the office must have sufficient experience to respond promptly to inquiries regarding transfers, including legal items.

  6. Securities received before the close of business at the office on a record date or any other date involving the rights of a securityholder must be recorded as of that date so as to establish the transferee's rights.

  7. Facilities should be available for expediting transfer service when needed. No objection will be made if a reasonable charge is made for such special service.

  8. The Exchange reserves the right to request a company with securities listed on the Exchange to terminate the appointment of its transfer agent in the event of the failure of such transfer agent to conform to all of the foregoing requirements.

As is the case with NYSE Rule 496, AMEX Rule 891 imposes a 48 hour turnaround requirement, as well as requirements governing transfer agents located outside New York City.

Written Inquiries and Requests
Given the central role that they play in effecting the transfer of ownership of securities, maintaining records related to the ownership of securities, and the processing and distribution of dividend and interest payments, transfer agents often receive inquires and other requests from the public and from broker-dealers concerning items presented for transfer, such as the status of an "item" presented, confirmation of transfer instructions, account transcripts or information concerning dividend or interest payments.  SEC Rule 17Ad-5, "Written Inquiries and Requests," addresses the performance requirements that govern how transfer agents respond to inquiries and requests.

Turnaround Standards for Written Inquiries and Requests

Inquiries and Requests from Persons
When a registered transfer agent receives a written request regarding the status of an "item" presented for transfer in the last six months, the registered transfer agent must respond to the inquiry within five business days.  The response include the following information:

  • If the "item" has been received, but not transferred, the response must include the reason for the delay in transferring the "item" and what additional matters, if any, must be resolved before the "item" can be transferred;

  • If the "item" has been both received and transferred, the response must state the date and manner in which the "item" was made available, the address where the "item" was sent, and the number of any new certificate and the name in which the new certificate was registered.

The written inquiry must identify the issue, the number of shares (or the principal amount of debt securities or number of units for other types of securities) presented for transfer, the approximate date that the "items" were presented, and the name in which the security was registered. 

When a person makes a written request that would otherwise qualify under Rule 17Ad-5 except that it does not contain all the information required or requests information for an earlier time period, the transfer agent must promptly confirm receipt of the inquiry or request and respond to it as soon as possible.

If a new certificate is dispatched or mailed to the presentor within five business days following the receipt of an inquiry, the transfer agent is not required to send any response.

When any person, including anyone acting under his or her authority, requests that the registered transfer agent confirm that, during the thirty days before the date of the inquiry, it had possession of a security, the transfer agent must respond within ten business days of receiving such request.  If, however, the transfer agent requires the payment of a reasonable fee, the transfer agent is not required to respond before payment of the fee is assured.  The transfer agent's response must confirm or deny possession of the securities in question as of date of the inquiry.

The written inquiry must identify the issue, the number of shares (or the principal amount of debt securities or number of units for other types of securities) presented for transfer, the approximate date that the "items" were presented, the certificate number, and the name in which the security was registered.

When any person makes a written request for a transcript of his or her account regarding a particular issue, either as the account appears currently or as of a specific date within the prior six months, a registered transfer agent must, within twenty business days of receiving the request, provide a transcript, ledger or statement of the account that is sufficiently detailed as to permit reconstruction of the account as of the date of the transcript.  If, however, the transfer agent requires the payment of a reasonable fee, the transfer agent is not required to respond before payment of the fee is assured. 

Inquiries and Requests from Broker-Dealers
Upon receipt of written requests from broker-dealers requesting that the registered transfer agent acknowledge its possession of the securities presented for transfer and the broker-dealer's transfer instructions, or revalidation of a window ticket for the securities presented for transfer, a registered transfer agent must, within five business days:

  • Confirm or deny, in writing, possession of the securities in question; and
  • If the transfer agent has possession of the securities
    • Acknowledge the transfer instructions, or
    • Revalidate the window ticket

The written inquiry must identify the issue, the number of shares (or the principal amount of debt securities or number of units for other types of securities) presented for transfer, the approximate date that the "items" were presented, and the name in which the security was registered.  If a new certificate is dispatched or mailed to the presentor within five business days following the receipt of an inquiry, the transfer agent is not required to send any response.

Written Inquiries Concerning Dividend and Interest Payments
Rule 17Ad-5(e) requires registered transfer agents to respond within ten business days of receipt to "current claims" containing "sufficient detail."  Registered transfer agents must respond within twenty business days to "aged claims."  The written response must:

  • Acknowledge that the inquiry has been received;
  • Indicate whether further research is needed;
    • If further research is needed, a reasonable estimate of how long the research will take must be included;
    • If no further research is needed, the transfer agent's response must indicate if the claim will be paid, and, if not, the reason for not paying the claim.

Registered transfer agents must devote diligent attention to unresolved inquiries and resolve all inquiries as soon as possible.

17Ad-5(e)(3) defines "current claim" as a written inquiry concerning non-payment or incorrect payment of dividends or interest with a payment date within the preceding six months.  An "age claim" is a written inquiry concerning non-payment or incorrect payment of dividends or interest with a payment date that occurred more than six month the date of the inquiry. 

A current claim contains sufficient detail when the written inquiry or request identifies the following information:

  • Issuer;
  • Name(s) in which the securities are registered;
  • Number of shares (or the principal amount of debt securities or number of units for other types of securities) involved;
  • Approximate record date(s) or payment date(s) relating to the claim;
  • Certificate numbers, (for inquiries from broker-dealers, registered clearing agencies, or banks.)

When a person makes a written request that would otherwise qualify under Rule 17Ad-5(e) except that it does not contain sufficient detail, Rule 17Ad-5(f), "Telephone Response," permits the transfer agent to telephone the inquirer to obtain the necessary information within the ten business day response period.  If, however, the transfer agent does not receive the necessary information within ten business days, the transfer agent must immediately send that person a written request for the additional information needed.  When a person, however, makes a written request that qualifies under Rule 17Ad-5(e), except that the request does not contain sufficient detail, the transfer agent must, nonetheless respond to the inquiry with the required timeframes, ten or twenty days.  The transfer agent may respond to the inquiry as if it contained sufficient detail or may return it to the inquirer with a request for the necessary information.

Registered transfer agents are required to "misdirected" inquiries.  Misdirected inquiries comprise the following situations:

  • The transfer agent is not the dividend disbursing or interest paying agent for the issue that is the subject of the claim, but did perform those services, or any transfer agent services, for the issue within the preceding three years.  In this case the transfer agent must provide a written response within ten business days of receiving the inquiry.  The response must include the name and address of the current dividend disbursing or interest paying agent; and
  • The transfer agent did not perform those or any other transfer agent services for the issue in question within the preceding three years.  In this case, the transfer agent must respond to the inquiry.  The transfer agent can respond by returning the inquiry with a statement that the transfer agent is not the current dividend disbursing or interest paying agent and that it does not know the name and address of the current dividend disbursing or interest paying agent.

17Ad-5(f) permits registered transfer agents to satisfy the rule's written response requirements by telephone if;

  • The telephone response resolves the problem; and
  • The inquirer does not request a written response.

The table below summarizes turnaround requirements for the various types of inquiries and requests.

Summary of Response Timeframes for Written Inquiries and Requests
Type of Inquiry/Request Business Days Allowed to Respond to Inquiry/Request
Status of Items Presented for Transfer 5
Broker-Dealer Inquires/Requests 5
Confirmation of Possession of Certificate 10
Dividends/Interest - Current Claims 10
Account Transcripts 20
Dividends/Interest - Aged Claims 20

Recordkeeping
The timely and accurate maintenance of books and records is a fundamental duty of a transfer agent.  The failure to maintain accurate records or to promptly post transactions can result in harm to investors.  For example, the transfer of certificates may be adversely affected by delays and errors resulting from inaccurate records.  In addition, recordkeeping deficiencies can result in investors not receiving interest and dividend payments or proxy materials.  In addition, the accurate maintenance of books and records permits transfer agents to respond to written inquiries within the required timeframe and to monitor compliance with turnaround standards for the transfer of securities.  SEC Rule 17Ad-6, "Recordkeeping," requires transfer agents to maintain certain records.  SEC Rule 17Ad-7, "Record Retention," established minimum timeframes for the retention of required records. 

Rule 17Ad-6 does not require any specific type of recordkeeping system or forms.  A transfer agent may, therefore, establish a recordkeeping and retention system appropriate for the size and complexity of its securities transfer operations, provided that the records required by Rule 17Ad-6 contain all the necessary information and are retrievable as required by Rule 17Ad-7, "Record Retention."  In addition, the records required by Rule 17Ad-6 must be kept on an aggregate basis.  For example, records documenting compliance with turnaround performance must be on an institution wide basis.  A transfer agent that provides services both for itself as a named transfer agent and for other transfer agents under a "private label" arrangement, can not maintain separate performance records for its "private label" operations. Discussed below are the various records required and the requirements for keeping such records.

Daily Transactions
Transfer agents must keep daily records detailing "items" presented for transfer.  Rule 17Ad-6(a)(1) requires transfer agent to make and keep current a receipt, ticket, schedule, log or other record that shows:

  1. The business day that each routine "item" and non-routine "item" is received from a presentor or, if applicable, outside registrar; and
  2. The business day that each "item" was made available to the presentor, or, if applicable, outside registrar.

No particular form of receipt or ticket is required, provided the ticket identifies the "item" involved and the business day it was received and made available. The SEC, however, has opined that the records can not be maintained in a fragmentary manner, for example, partially maintained in a log and partially on tickets.  The required information should be complied in one record or separate tickets should be attached together.  Even though a transfer agent has the flexibility to adopt a recordkeeping system suitable to its operations, the recordkeeping system must integrate and centrally locate all the required information. The dates received and made available must be specific dates and the entries in the daily log must be traceable to the specific "item."  When an outside registrar is involved there will be four dates associated with an "item" - the date received from the presentor, the date made available to the outside registrar, the date received by the outside registrar, and the date made available to the presentor.  With respect to "items" tendered in connection with a record date, the record should include the date and time the "item" was actually received.

Note that the daily records, often referred to as the daily log, must identify each "item" as routine or non-routine.  Daily records must be maintained by all transfer agents, including "small transfer agents", i.e. exempt transfer agents.  A transfer agent must maintain any document upon which the transfer bases its determination that an "items" was received in connection with a reorganization, tender offer, exchange, redemption, liquidation, conversion or the sale of securities, registered under the Securities Act of 1933, offered to the public within the previous 15 days, and thus is not a routine "item."  The documents must be traceable to the particular "item" received for transfer.  The SEC has suggested two methods for providing tractability, 1) attach the ticket to the documentation, or 2) refer directly on the ticket to the document that is the basis for the determination that the "item" is non-routine. 

Monthly Transactions
Transfer agents, with the exception of exempt transfer agents, are required to maintain records documenting the transfer agent's securities transfer turnaround performance for each month.  The monthly log (or journal, tally, schedule or other record) must, for each month, show:

  1. The number of routine "items" received;
  2. The number of routine "items" received that were turned around within three business days of receipt;
  3. The number of routine "items" received that were not turned around within three business days of receipt;
  4. The number of non-routine "items" received;
  5. The number of non-routine "items" received that were turned around;
  6. The number of routine "items" that, as of the close of business on the last business of each month, are in the transfer agents possession for more than four business days.  Routine "items" held by the transfer agent for more that four business days must be aged in one business day increments, beginning with the fifth business day.

Entries in the monthly log are cumulative.  "Items" still outstanding from the previous month's log must be carried over to the following month or months.  Note that only routine "items" must be aged.

Records of Outside Registrars
The following requirements apply to records pertaining to "items" for which the transfer agent serves as an outside registrar:

  • A daily log (or receipt, ticket, schedule or other record) showing the date and time:
    • Each items is received from the presenting transfer agent and made available to the presenting transfer agent;
    • Each written or oral notice of refusal to perform the registrar function was made available to the presenting transfer agent, along with the substance of the notice; and
  • A monthly log (or tally, journal, schedule or other record) showing:
    • The number of "items" received;
    • The number of "items" processed by:
      • the opening of business on the next business day, in the case of "items" received at or before noon on a business day; or
      • by noon of the next business day, in the case of "items" received after noon on a business day (See Rule 17Ad-2(b)); and
    • The number of "items" not processed as required by Rule 17Ad-2(b).  (See previous bullet.)

    Note that "items" referred to above do not include certificates presented in conjunction with corporate reorganizations, tender offers, exchanges, redemptions or liquidations; the exercise of warrants, rights or convertible securities; or a security which was offered to the public within the previous 15 days pursuant to a registration statement under the Securities Act of 1933, if the offering is not of a continuing nature.  It also does not apply to any "item" that is not accompanied by a debit or cancelled certificate.

    Even though an "item" is processed within a time period shorter than that mandated by 17Ad-2(b) must still be included in the registrar's records (the same is true for transfer agents).  Those "items" must be included in calculating turnaround performance.  See below.

Turnaround Performance for Securities Transfers
With the exception of exempt transfer agents, registered transfer agents must keep records demonstrating compliance with SEC turnaround requirements.  The record must contain calculations that demonstrate that the transfer agent has turned around "items" in accordance with Rule 17Ad-2. 

In addition, if applicable, a registered transfer agent, with the exception of an exempt transfer agent, must keep a copy of any written notice filed as a result of failing to meet the turnaround requirements of Rule 17Ad-2.

No specific form of record is required, provided the calculations of turnaround performance are actually shown.  For example, a record document showing the total number of routine "items" received in a month and turned around within three business days of receipt divided by the total number of routine "items" received in that month would be sufficient.

Records Pertaining to Written Inquiries
With the exception of exempt transfer agents, registered transfer agents are required to keep the following records for written requests and inquiries:

  • Any written request or inquiry, including those not subject to the requirements of Rule 17Ad-5.  The records must include:
    • The date received;
    • A copy of any written response, including the date the response was sent to the presentor;
    • If no response was sent, the date the certificate involved was made available to the presentor; and
    • If, in response to an inquiry concerning the status of an "item" presented for transfer, the presentor was contacted by telephone, a telephone log or memorandum showing the date and substance of the telephone response.
  • A monthly log (journal, schedule or other record) showing:
    • The number of inquiries received, other than inquiries concerning dividend and interest payments, that were not responded to within the required timeframes of Rule 17Ad-5; and
    • The number of such inquiries pending as of the close of business of the last business day of the month.

A "named transfer agent" must keep a copy of all inquiries and requests it receives even if it forwards them to a service bureau for response.  As noted above, this applies to inquiries and requests that are not covered by the requirement of 17Ad-5.

Appointment Documentation
Rule 17Ad-6(a)(8) requires transfer agents to all documents, including resolutions, contracts, appointments and other writings connected with the appointment or termination of the transfer agent's appointment to perform any transfer agent services for a particular issue of securities.  The maintenance of appointment documentation is required regardless of whether the transfer agent provides transfer agent services only for its own securities, the securities of affiliated entities, or the securities issued by outside entities.  For example, an issuer that only maintains the official securityholder records must comply with this rule.

Other Records
Registered transfer agents are required to maintain the following records:

Transfer Restrictions - Records of active (i.e. unreleased) stop orders, notice of adverse claim or other restrictions on the transfer of a security. A stop or other restriction on transfer remains active until the transfer agent receives instructions from an authorized person to release it. Rule 17Ad-6(a)(9);

Journals - A copy of any transfer journal or registrar journal prepared by the transfer agent.  The SEC notes, however, that a registered transfer agent is not required to prepare or maintain a transfer or registrar journal. But if the transfer agent does maintain a journal, then it must be kept current. Rule 17Ad-6(a)(10);

Control Book - A transfer agent that maintains securityholder records for an issue or acts as a registrar for an issue must maintain an up to date copy of the control book for each issue, Rule 17Ad-6(b);

Cancelled Certificates - A transfer agent that maintains securityholder records for an issue must maintain each cancelled registered bond, debenture, share, warrant or right, other registered evidence of indebtedness, or other certificate of ownership and all accompanying documentation, except legal papers returned to a presentor.  Rule 17Ad-6(c).  Also see Rule 17Ad-19 for requirements governing the cancellation of certificates.

When an issuer acts as transfer agent for its own securities solely for the maintenance of securityholder records and a service bureau cancels and issues certificates, the issuer transfer agent must, nonetheless, maintain a copy of the control book, as well as copies of each cancelled certificate. 

Record Retention
SEC Rule 17Ad-7, "Record Retention," sets forth how long the various records required under Section 17Ad must be maintained.  In many cases, Rule 17Ad-7 requires records to be maintained in an easily accessible place for a designated period of time.  Detailed below are the various record retention requirements. 

Two years, first six months in easily accessible place
  • Daily Log - Both for transfer agents and outside registrars.  17Ad-6(a)(1) and 17Ad-6(a)(3)(i)
  • Copies of written inquires and requests.  17Ad-6(a)(6)
  • Documents relied upon to determine that an "item" was received in conjunction with a reorganization, tender offer, redemption, etc.  17Ad-6(a)(11)

Note: "Exempt Transfer Agents" are only required to maintain a daily log.  See SEC Rule 17Ad-4(b).

Two years, first year in easily accessible place
  • Monthly Log - Both for transfer agents and outside registrars.  17Ad-6(a)(2) and 17Ad-6(a)(3)(ii)
  • Record of calculation demonstrating monitoring of compliance with transfer turnaround requirements.  17Ad-6(a)(4)
  • Copies of written notices of failure to meet turnaround requirements. 17Ad-6(a)(5)
  • Written inquiries and request logs.  17Ad-6(a)(7)

Note: "Exempt Transfer Agents" are not required to maintain these records.  See SEC Rule 17Ad-4(b)

Three years, first year in easily accessible place
  • Records demonstrating compliance with the search obligations for lost securityholders under SEC Rule 17Ad-17(c).  17Ad-7(i)
Easily accessible and one year after termination of TA
  • Documentation of appointment. 17Ad-6(a)(8)
  • Records of active (i.e. unreleased) stop orders, notice of adverse claims, or other restrictions on transfer. 17Ad-6(a)(9)
  • Copies of any transfer journals or registrar journals. 17Ad-6(a)(10)
  • Control books. 17Ad-6(b)

These records must be maintained during the continuance of the transfer agency appointment for a particular issue, and for one year after the appointment is terminated.  The time period in question does not refer to the period of time that the transfer agent is registered.

Six years, first six months in easily accessible place
  • Cancelled certificates and all accompanying documentation, except legal papers returned to presentor.  17Ad-6(c)
Easily accessible place
  • Records relating to the fingerprinting of securities industry personnel. Records must be retained for at least three years after the termination of employment of those persons required by SEC Rule 17f-2 to be fingerprinted.  17Ad-7(e)(1)
  • Notice pursuant to Rule 17f-2. 17Ad-7(e)(2)

Note: A registered transfer agent that performs transfer agent functions only for itself as an issuer and that receives fewer than 500 "items" for transfer or fewer than 500 "items" for processing during any consecutive six month period is exempt from having to maintain a Notice Pursuant to Rule 17f-2.

Retention Requirements Upon Termination of Appointment
When a registered transfer agent stops performing transfer agent services for an issue, the transfer agents responsibility for maintaining the following records terminates when the records are transferred to the successor transfer agent:

  • Daily Log
  • Copies of Written Inquires and Requests
  • Records of Active (i.e. unreleased) Stop Orders, Notices of Adverse Claim or Other Restrictions on Transfer
  • Copies of transfer or registrar journals
  • Documents relied upon to determine that an "item" was received in conjunction with a reorganization, tender offer, redemption, etc.
  • Control Books
  • Cancelled Certificates

A registered transfer agent that is terminating transfer agent services for a particular issue, or terminating transfer agent activity entirely, can satisfy its recordkeeping and retention responsibilities by delivering these records to the issue, an outside service bureau, or to a successor transfer agent.  If the transfer agent delivers the records to the issuer or an outside service bureau, the transfer agent must obtain a written agreement from the issuer or service bureau.  The written agreement must state that the records will be maintained for the required time periods and will be made available to the SEC or ARA as required.  No written agreement is required if the records are delivered to a successor transfer agent.

For those records not specific above, a transfer agent that has stopped providing transfer agent services with respect to a particular issue or that has ceased all transfer agent activities must maintain the records are required by 17Ad-7.

Electronic and Micrographic Recordkeeping
SEC Rule 17Ad-7(f) permits registered transfer agents to utilize micrographic and electronic storage media for keeping and maintaining required records.  Micrographic media include microfilm, microfiche and similar methods.  Electronic media are digital storage media or systems.  Registered transfer agents that utilize these types of recordkeeping systems, however, are required to comply with SEC requirements designed to ensure the security and integrity of the underlying records.  Registered transfer agents that use electronic or micrographic media to store records must:

  • Provide facilities to project or produce immediately easily readable images of the records.  These facilities must be available at all times to the SEC and the appropriate regulatory agency (ARA);
  • Be ready at all times to provide the records requested by the SEC or the ARA;
  • Create an accurate index of the records.  The index must be stored with the records and the index must be available at all times to the SEC and the ARA;
  • Establish procedures for assuring the quality and accuracy of the micrographic or electronic recordkeeping system;
  • Maintain duplicates of the original records, along with the corresponding index.  The duplicate records and index must be stored separately from the original records.  Duplicate records can be stored using any storage media permitted, i.e. hardcopy, micrographicly, or electronically.  The records must be created and maintained in accordance with the requirements set forth in Rules 17Ad-6 and 17Ad-7.

In addition, the storage media must provide the following:

  • Ensure the security and accuracy of the records.  The storage media must:
    • Incorporate controls that assure the authenticity and quality of the records, by the use of either manual or automated controls;
    • Detect attempts to alter or remove records;
    • Provide a means of recovering altered, damaged, or lost records, regardless of the cause.
  • Externally label all removable storage media units with a unique identifier that allows the manual association of the unit with its place and order in the recordkeeping system.
  • Identify and internally label each file.  The label used should:
    • Be unique;
    • Include the date and time the file was created;
    • Include the date and time the file was last modified or extended;
    • Include a file sequence number when the file spans more than one volume.

Registered transfer agents that use micrographic or electronic recordkeeping systems must have an audit system that tracks the inputting of records, along with changes to any record stored.  The results of the audit system must:

  • Be available at all times to the SEC and ARA; and
  • Be retained for the same time periods as the underlying records.

Registered transfer agents that use micrographic or electronic recordkeeping systems must ensure that the records can be accessed by the SEC or ARA when necessary.  Therefore, transfer agents using such media must:

  • Maintain, keep current and provide to the SEC or ARA all information necessary to access the records and indexes stored;
  • Place in escrow with an independent third party and keep current the following:
    •  a copy of the physical and logical format of the electronic or micrographic records;
    • the field format of all the different information types stored;
    • the source code; and
    • the appropriate documentation and information necessary to access records and indexes.

The independent escrow agent must file and undertaking with the SEC and the ARA.  The undertaking must be signed by a duly authorized individual and must state:

"[Name of Third Party] hereby undertakes to furnish promptly upon request to the U.S. Securities and Exchange Commission, its designees, or representatives, upon reasonable request, a current copy of the physical and logical format of the electronic storage or micrographic media, the field format of all different information types written on the electronic storage media and source code, and the appropriate documentation and information necessary to access the records and indexes of [Name of Transfer Agent]'s electronic records management system."

A registered transfer agent can use a third party to maintain or preserve some or all of the records required by Rules 17Ad-6 and 17Ad-7 in electronic of micrographic form.  If a transfer agent uses a third party provider, the third party provider must file a written undertaking to the SEC and the ARA.  The undertaking must be signed by a duly appointed individual and must state:

 "With respect to any books and records maintained or preserved on behalf of [Name of Transfer Agent], [Name of Third Party] hereby undertakes to permit examination of such books and records at any time or from time to time during business hours by representatives or designees of the U.S. Securities and Exchange Commission, and to promptly furnish to said Commission or its designee true, correct, complete, and current hard copies of any or all or any part of such books and records."

Note that Rule 17Ad-7(f)(6)(ii) states that "Agreement with a third party to maintain your records shall not relieve you from the responsibility to prepare and maintain records as specified in this section or in  240.17Ad--6."  Thus, registered transfer agents need to ensure that required records are being created and maintained and should have policies and procedures to ensure that third party providers are, in fact, maintaining and preserving records in accordance with SEC requirements.

Access to Records Maintained by Outside Service Bureaus, Third Parties or the Issuer
When a registered transfer agent uses an outside service bureau, third party recordkeeping, or the issuer keeps and maintains records, the transfer agent must obtain a written agreement which:

  • Specifies that the records are subject from time to time, to reasonable periodic or special examinations by the SEC or the ARA; and
  • Specifies that complete, correct, and current hard copies of all records will be furnished to the SEC or ARA upon demand. The records will be furnished at the principal office or at any regional office.

 

    Last Updated 05/10/2005

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