[Federal Register Volume 78, Number 15 (Wednesday, January 23, 2013)]
[Rules and Regulations]
[Pages 4768-4784]
[FR Doc No: 2013-01269]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-68668; File No. S7-11-11]
RIN 3235-AL11

Lost Securityholders and Unresponsive Payees

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: The Securities and Exchange Commission (``Commission'') is
adopting amendments to Rule 17Ad-17 to implement the requirements of
Section 929W of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (``Dodd-Frank Act''). That Section added to Section 17A
of the Securities Exchange Act of 1934 (``Exchange Act'') subsection
(g), ``Due Diligence for the Delivery of Dividends, Interest, and Other
Valuable Property Rights,'' which directs the Commission to revise
Exchange Act Rule 17Ad-17, ``Transfer Agents' Obligation to Search for
Lost Securityholders'' to: extend the requirements of Rule 17Ad-17 to
search for lost securityholders from only recordkeeping transfer agents
to brokers and dealers as well; add a requirement that ``paying
agents'' notify ``unresponsive payees'' that a paying agent has sent a
securityholder a check that has not yet been negotiated; and add
certain other provisions. The Commission also is adopting a proposed
conforming amendment to Rule 17Ad-7(i) and new Rule 15b1-6, a technical
rule to help ensure that brokers and dealers have notice of their new
obligations with respect to lost securityholders and unresponsive
payees.

DATES: The amendments will become effective on March 25, 2013. The

compliance date will be January 23, 2014.

FOR FURTHER INFORMATION CONTACT: Thomas C. Etter, Jr., Special Counsel,
at<PHONE_NUMBER>, Division of Trading and Markets, Securities and
Exchange Commission, 100 F Street NE., Washington, DC 20549-7010.

SUPPLEMENTARY INFORMATION

I. Introduction

    On July 21, 2010, the President signed the Dodd-Frank Act into
law.\1\ This legislation was enacted to, among other things, promote
the financial stability of the United States by improving
accountability and transparency in the financial system.\2\ Title IX of
the Dodd-Frank Act provides the Commission with new tools to protect
investors and to improve the regulation of securities.\3\
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    \1\ Dodd-Frank Wall Street Reform and Consumer Protection Act,
Public Law 111-203, 124 Stat. 1376 (2010).
    \2\ Id. at Preamble.
    \3\ Id. Sec.  901 (``This section may be cited as the `Investor
Protection and Securities Reform Act of 2010'.''); Title IX
(``Investor Protections and Improvements to the Regulation of
Securities'').
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    Section 929W of the Dodd-Frank Act added to Section 17A of the
Exchange Act subsection (g), which requires the Commission to revise
Exchange Act Rule 17Ad-17 \4\ to extend to brokers and dealers the
rule's requirement that recordkeeping transfer agents search for ``lost
securityholders.'' \5\
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    \4\ 17 CFR 240.17Ad-17.
    \5\ Rule 17Ad-17(b)(2), as amended herein, defines a ``lost
securityholder'' to mean ``a securityholder: (i) To whom an item of
correspondence that was sent to the securityholder at the address
contained in the transfer agent's master securityholder file or in
the customer security account record of the broker or dealer has
been returned as undeliverable; provided, however, that if such item
is re-sent within one month to the lost securityholder, the transfer
agent, broker, or dealer may deem the securityholder to be a lost
securityholder as of the day the re-sent item is returned as
undeliverable; and (ii) For whom the transfer agent, broker, or
dealer has not received information regarding the securityholder's
new address.''
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    Subsection (g) of Section 17A of the Exchange Act further directs
the Commission to revise Rule 17Ad-17 to include ``a requirement that
the paying agent provide a single written notification to each missing
security holder that the missing security holder has been sent a check
that has not yet been negotiated.'' \6\ Such written notification must
be sent to a missing securityholder no later than seven months after
the sending of the not yet negotiated check and may be sent along with
a check or other mailing subsequently sent to the missing
securityholder.
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    \6\ Section 17A(g)(1)(A), 15 U.S.C. 78q-1(g)(1)(A). We note that
in drafting Exchange Act Section 17A(g), Congress used a two-word
formulation of the term ``security holder.'' Currently, in Rule
17Ad-17, however, there is a one-word formulation of the term
``securityholder.'' We do not believe that Congress intended for the
term ``security holder'' to have a different meaning than the term
``securityholder.'' Thus, for the sake of consistency within Rule
17Ad-17, we use the term ``missing securityholder'' to discuss the
statutory provision and the amendments to Rule 17Ad-17. In addition,
as discussed further in Section II.B.2 below, in response to
comments, we use the term ``unresponsive payee'' in the rule text
and throughout this release in place of the statutory term ``missing
securityholder.''
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    Section 17A(g)(1)(D)(i) of the Exchange Act provides that ``a
security holder shall be considered a `missing security holder' if a
check is sent to the security holder and the check is not negotiated
before the earlier of the paying agent sending the next regularly
scheduled check or the elapsing of six months after the sending of the
not yet negotiated check.'' \7\ Section 17A(g)(1)(D)(ii) of the
Exchange Act defines the term ``paying agent'' to include ``any issuer,
transfer agent, broker, dealer, investment adviser, indenture trustee,
custodian, or any other person that accepts payments from the issuer of
a security and distributes the payments to the holders of the
security.'' \8\
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    \7\ Section 17A(g)(1)(D)(i), 15 U.S.C. 78q-1(g)(1)(D)(i).
    \8\ Section 17A(g)(1)(D)(ii), 15 U.S.C. 78q-1(g)(1)(D)(ii).
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    Exchange Act Section 17A(g)(1)(B) and (C) also require that the
revisions to Rule 17Ad-17: (1) Provide an exclusion for paying agents
from the notification requirements when the value of the not yet
negotiated check is less than $25; \9\ and (2) add a provision to make
clear that the notification requirements imposed on paying agents shall
have no effect on state escheatment laws.\10\
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    \9\ Section 17A(g)(1)(B), 15 U.S.C. 78q-1(g)(1)(B).
    \10\ Section 17A(g)(1)(C), 15 U.S.C. 78q-1(g)(1)(C).
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    Exchange Act Section 17A(g)(2) requires the Commission to adopt
rules, regulations, or orders necessary to implement the provisions of
Section 17A(g)(1).\11\ Section 17A(g)(2) further requires the
Commission to seek to minimize disruptions to the current systems used
by or on behalf of paying agents to process payments to account holders
and to avoid requiring multiple paying agents to send written
notification to a missing security holder regarding the same not yet
negotiated check.\12\
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    \11\ Section 17A(g)(2), 15 U.S.C. 78q-1(g)(2).
    \12\ Id.
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    On March 18, 2011, the Commission issued a release proposing for
comment amendments to Exchange Act Rules 17Ad-17 and 17Ad-7
(``Proposing Release'').\13\ The amendments were designed to implement
Section 929W of the Dodd-Frank Act.
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    \13\ 17 CFR 240.17Ad-17 and 240.17Ad-7; Securities Exchange Act
Release No. 64099 (March 18, 2011), 76 FR 16707 (Mar. 25, 2011)
(``Proposing Release'').
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    The Commission received fourteen comment letters on the proposed
rule amendments, including six letters from trade associations.\14\
Five commenters generally expressed support for the amendments,\15\ and
one commenter expressed disapproval.\16\ Twelve commenters offered
suggestions for modification or requests for clarification with respect
to specific provisions of the proposal.\17\ As discussed below, we are
adopting the proposed amendments to Rule 17Ad-17 with certain
modifications based on the comments we received, and we are adopting an
amendment to Rule 17Ad-7(i) as proposed. We also are adopting a new
rule, Rule 15b1-6, to ensure that brokers and dealers have notice of
their new obligations with respect to lost securityholders and
unresponsive payees.
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    \14\ The Commission received comment letters from six trade
associations (representing transfer agents, investment companies,
insurance products, the securities industry, the banking industry,
and the securities bar), two transfer agents, one broker-dealer, one
law firm, and four individuals.
    Letters were received from: Mary Pitman, author, The Little Book
of Missing Money (March 25, 2011); Kara Follis (April 6, 2011); B.J.
Luis (April 7, 2011); Chris Barnard (May 2, 2011); Charles V. Rossi,
President, The Security Transfer Association, Inc. (``STA'') (May 5,
2011); Tamara K. Salmon, Senior Associate Counsel, Investment
Company Institute (``ICI'') (May 9, 2011); Laura Stevenson,
Compliance Officer, Computershare Trust Company of Canada/
Computershare Investor Services Inc. (``Computershare'') (May 9,
2011); Ronald C. Long, Director of Regulatory Services, Wells Fargo
Advisors (``WFA'') (May 9, 2011); Prescott Lovern, President, R & L
Associates Law LLC (May 9, 2011); Holly H. Smith and Clifford E.
Kirsch, Sutherland Asbill & Brennan, LLP on behalf of its client,
The Committee on Annuity Insurers (``Annuity Committee'') (May 9,
2011); Thomas F. Price, Managing Director, SIFMA (May 9, 2011);
Anthony Thalman, Managing Director, BNY Mellon Shareholder Services
(``BNY Mellon'') (May 17, 2011); Phoebe A. Papageorgiou, Senior
Counsel, American Bankers Association (``American Bankers'') (May
23, 2011); and Jeffrey W. Rubin, Chair, Federal Regulation of
Securities Committee, Business Law Section, American Bar Association
(``ABA'') (May 26, 2011).
    \15\ Kara Folis, Chris Barnard, STA, ICI, and SIFMA, supra note
14.
    \16\ Prescott Lovern, supra note 14.
    \17\ Chris Barnard, STA, ICI, Computershare, WFA, SIFMA,
Prescott Levern, Annuity Committee, SIFMA, BNY Mellon, American
Bankers, and ABA, supra note 14.
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II. Final Rule

A. Background

    The Commission originally adopted Rule 17Ad-17 in 1997 to address
situations where recordkeeping transfer agents have lost contact with

securityholders.\18\ The rule requires such transfer agents to exercise
reasonable care to ascertain the correct addresses of these ``lost
securityholders'' and to conduct certain database searches for
them.\19\ As the Commission noted at that time, such loss of contact
can be harmful to securityholders because they no longer receive
corporate communications or the interest and dividend payments to which
they may be entitled.\20\ Additionally, the securities and any related
interest and dividend payments to which the securityholders may be
entitled are often placed at risk of being deemed abandoned under
operation of state escheatment laws.\21\ This loss of contact has
various causes, but it most frequently results from: (1) Failure of a
securityholder to notify the transfer agent of his correct address
after relocating; or (2) failure of the estate of a deceased
securityholder to notify the transfer agent of the death of the
securityholder and the name and address of the trustee/administrator
for the estate.\22\
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    \18\ Securities Exchange Act Release No. 39176 (Oct. 1, 1997),
62 FR 52229 (Oct. 7, 1997) (``Rule 17Ad-17 Adopting Release''). A
``recordkeeping transfer agent'' is a registered transfer agent that
maintains and updates the master securityholder file. See Rule 17Ad-
9(h).
    \19\ Rule 17Ad-17, 17 CFR 240.17Ad-17.
    \20\ Rule 17Ad-17 Adopting Release, supra note 18.
    \21\ Id. Generally, after expiration of a certain period of
time, which varies from state to state but is usually three to seven
years, an issuer or its transfer agent will remit abandoned property
(e.g., securities and funds of lost securityholders) to a state's
unclaimed property administrator pursuant to the state's escheatment
laws.
    \22\ Securities Exchange Act Release No. 37595 (Aug. 22, 1996),
61 FR 44249 (Aug. 28, 1996).
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B. Discussion

1. Application of Rule 17Ad-17 to Brokers and Dealers
    The amendments to Rule 17Ad-17 implement the statutory directive of
Section 17A(g)(1) of the Exchange Act to extend the application of that
rule to brokers and dealers. Specifically, the Commission is adopting
the changes to Rule 17Ad-17 implementing this extension largely as
proposed, principally by revising paragraph (a) of Rule 17Ad-17 to
extend its requirements to ``every broker or dealer that has customer
security accounts that include accounts of lost securityholders''.\23\
As a result, each such broker or dealer will, like recordkeeping
transfer agents, be required to exercise reasonable care to ascertain
the correct addresses of ``lost securityholders'', as that term is
defined in paragraph (b)(2)(i) of Rule 17Ad-17, and to conduct certain
database searches for them.\24\ The database searches will be conducted
by taxpayer identification number (``TIN''), or by name if a search
based on TIN is not likely to locate the securityholder, the same
procedure that has existed under Rule 17Ad-17 since its adoption in
1997 with respect to lost securityholder searches by transfer
agents.\25\
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    \23\ While the Commission is adopting Rule 17Ad-17(a) largely as
proposed, we are clarifying that the requirements apply only to
brokers or dealers that have customer security accounts ``that
include accounts of lost securityholders''. The additional language
parallels the language applicable to recordkeeping transfer agents
and eliminates ambiguity in the proposed rule as to what obligations
would be incurred by a broker or dealer that has no customer
security accounts of lost securityholders. Letter from ABA, supra
note 14.
    \24\ For the amended definition of ``lost securityholder,'' see
supra note 5.
    \25\ See Rule 17Ad-17 Adopting Release, supra note 18.
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a. Definition of ``Broker'' and ``Dealer''
    As adopted, Rule 17Ad-17(a) will now apply to all ``brokers'' and
``dealers''. Two commenters \26\ argued that extension of the rule's
lost securityholder requirements to brokers and dealers as directed by
the statute \27\ should be interpreted in paragraph (a) of Rule 17Ad-17
to mean only those brokers and dealers that carry securities for
customers (i.e., ``carrying firms''). As explained by one of these
commenters, carrying firms by contract accept the obligation to hold
customer funds and securities, and without a limitation to carrying
firms, the rule could be overbroad and could apply to insurance
underwriters and firms selling annuities that do not hold securities
for the accounts of customers.\28\ A third commenter \29\ suggested
that the Proposing Release overstated the carrying firm's role in
handling customers' accounts and stated that while the carrying firm
does carry customer accounts for introducing firms, in many cases it is
the introducing firm that has the primary relationship with the
customers. The commenter further suggested that the obligations of Rule
17Ad-17 be allocable among introducing and carrying firms such that the
broker or dealer that has the primary relationship with the particular
customer, which in many cases would be an introducing firm rather than
a carrying firm, would bear the responsibility for complying with those
obligations. A fourth commenter \30\ asserted that it is unclear
whether Congress intended to extend the rule's coverage to all brokers
and dealers and suggested that the Commission could use its exemptive
authority under Section 36 of the Exchange Act \31\ to narrow the
term's scope and apply the rule only to a subset of brokers and
dealers, such as those having customer accounts that contain securities
registered under Section 12 of the Exchange Act (``Section 12
securities'').\32\
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    \26\ Letters from Mr. Bernard and Annuity Committee, supra note
14.
    \27\ Exchange Act, Section 17A(g)(1), 15 U.S.C. 78q-1(g)(1).
    \28\ Letter from Annuity Committee, supra note 14. While
commenters that opined on limiting the kinds of brokers and dealers
covered by the amendments to Rule 17Ad-17 referred generally to
``clearing firms'', we believe the relevant question is whether to
apply the amendments only to carrying firms. While firms that are
not carrying firms may clear transactions--such as self-clearing
firms with no customer business--it does not appear that commenters
were addressing a limitation to clearing firms without regard to
whether such firms actually carry accounts for customers that could
be lost securityholders. Accordingly, the discussion in this release
focuses on ``carrying firms,'' not the broader universe of
``clearing firms''.
    \29\ Letter from SIFMA, supra note 14.
    \30\ Letter from ABA, supra note 14.
    \31\ 15 U.S.C. 78mm.
    \32\ 15 U.S.C. 78l.
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    The Commission has carefully considered these comments for
narrowing the application of Rule 17Ad-17 to some subset of brokers and
dealers or securities. The Commission acknowledges that there may be
different means by which a broker or dealer may determine whether it
has accounts of lost securityholders, as well as different means of
exercising reasonable care to ascertain the correct addresses of those
securityholders under Rule 17Ad-17.\33\ However, the statutory
directive of Section 17A(g) of the Exchange Act does not exclude any
class of brokers or dealers from making such determinations or
exercising such care. Rather, the terms ``broker'' and ``dealer'' used
by Section 17A(g) are defined terms under Sections 3(a)(4) and (5) of
the Exchange Act,\34\ and neither the statutory language of Section
17A(g) nor any legislative history indicates that Congress intended the
Commission to use an abbreviated or alternative version of these terms
for purposes of this rule. Similarly, there is no indication that
Congress intended that brokers' and dealers' obligations to search for
lost securityholders should depend on the type of the securities, such
as Section 12 securities, held in the securityholder's account.
Accordingly, the Commission believes that the approach set forth in the
Proposing Release of applying Rule 17Ad-17 to all brokers and dealers

remains an appropriate implementation of the recent amendments to the
Exchange Act and that an exercise of exemptive authority at this stage
would be premature.
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    \33\ For example, the specific functions of carrying and
introducing firms may vary from firm to firm depending on particular
carrying agreements. See, e.g., FINRA Rule 4311.
    \34\ 15 U.S.C. 78c(a)(4) and (5).
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    The Commission is therefore interpreting the terms ``broker'' and
``dealer'' in paragraph (a) of the rule to mean a ``broker'' or
``dealer'' as defined, respectively, in Exchange Act Sections 3(a)(4)
\35\ and 3(a)(5).\36\ Each broker or dealer that has customer security
accounts will have to determine whether one or more of its customers
has become a lost securityholder for purposes of the rule, whether it
is consequently subject to the requirements of Rule 17Ad-17 to search
for those customers, and what means it should use for making such
determinations and complying with such requirements.\37\
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    \35\ 15 U.S.C. 78c(a)(4).
    \36\ 15 U.S.C. 78c(a)(5).
    \37\ See, e.g., supra note 32.
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b. Items of Correspondence
    As adopted, Rule 17Ad-17(a)(1) will now require brokers and dealers
to search for ``lost securityholders'' as that term is defined in
paragraph (b)(2) of the rule. Two commenters questioned the obligation
to consider a securityholder ``lost'' after the return of a single item
of correspondence, as provided in paragraph (b)(2) of the rule.\38\
They suggested that this obligation, which previously applied only to
recordkeeping transfer agents, will be burdensome on brokers and
dealers because brokers and dealers, unlike transfer agents, routinely
send out large amounts of mail to securityholders. These commenters
argued that a single item of correspondence easily could be returned as
undeliverable, perhaps even by mistake.\39\ One of the commenters
suggested that the Commission modify the rule to expand the number of
returned correspondence to ``no less than three before deeming a
shareholder lost.'' \40\ The other commenter, while not addressing a
minimum quantity of returned items, suggested limiting the categories
of correspondence that trigger the lost securityholder designation to
``annual tax forms (e.g., Forms 1099), returned checks, or account
statements returned in two consecutive periods.'' \41\
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    \38\ Letters from WFA and SIFMA, supra note 14.
    \39\ Another commenter questioned the use of the term ``returned
as undeliverable'' in paragraph (b)(2) of the rule, asserting that
no one can prove that correspondence returned by the U.S. Postal
Service is undeliverable. Letter from Prescott Lovern, supra note
14. The Commission notes that the term ``undeliverable'', a term of
the U.S. Postal Service, has been in paragraph (b)(2) of Rule 17Ad-
17 since the original rule's adoption in 1997, and until receipt of
this comment, the Commission had never received a request for
guidance or a report of confusion concerning the term. Accordingly,
at this time, the Commission does not believe there is sufficient
basis for substituting another term in the rule.
    \40\ Letter from WFA, supra note 14.
    \41\ Letter from SIFMA, supra note 14.
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    The Commission notes that the purpose of Rule 17Ad-17 has been to
make certain that records of transfer agents--and now brokers and
dealers--reflect the correct addresses for securityholders. Because of
the importance of having accurate records and of maintaining contact
with securityholders, the rule as adopted in 1997--the version the
Commission is directed by Congress to extend to brokers and dealers--
provides that the obligation to search for a lost securityholder should
attach when the first item of any type of correspondence is returned as
undeliverable.\42\ The 1997 rule recognized that a loss of contact with
a securityholder does not turn on the number or nature of
correspondence, simply that correspondence was returned as
undeliverable. This objective and rationale for the rule conditioning
``lost securityholder'' status on a single item of any correspondence
remain whether the records of a transfer agent or a broker or dealer
are concerned. In addition, we note that to help make sure that the
item was not returned because of simple addressing error of the sender
or delivery error of the post office, Rule 17Ad-17 provides in
paragraph (b)(2)(i) that if the sender resends the returned item within
one month of its return, the sender does not have to consider the
securityholder lost until the item is again returned as undeliverable.
Consequently, brokers and dealers will have, as do transfer agents, a
way to confirm that an item that is returned as undeliverable is
actually undeliverable (i.e., was not returned because of error) before
the requirement to search for the lost securityholder attaches.
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    \42\ Rule 17Ad-17 Adopting Release, supra note 18.
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    Therefore, the Commission has determined not to adopt the
suggestions to delay a broker's or dealer's obligation to search until
several items or some specific type of correspondence have been
returned as undeliverable.
c. Other Issues Regarding Lost Securityholders
    One commenter suggested that if the proposed amendments to Rule
17Ad-17 were adopted, the rule should make clear that a broker's or
dealer's obligation to search for lost securityholders applies to the
same universe of securities to which a registered transfer agent's
obligation applies,\43\ which the commenter views as limited to Section
12 securities.\44\ As stated previously, Section 17A(g) of the Exchange
Act includes no indication that Congress intended to limit a broker-
dealer's obligation under this rule to Section 12 securities. In
addition, a transfer agent's obligations under Rule 17Ad-17 are not
limited to Section 12 securities. While a transfer agent is required to
register with the Commission only if it services one or more Section 12
securities,\45\ once a transfer agent is registered, its obligations,
including its search obligations under Rule 17Ad-17, are not limited to
Section 12 securities.
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    \43\ Letter from Annuity Committee, supra note 14.
    \44\ Exchange Act, Section 12, 78 U.S.C. 78l.
    \45\ Exchange Act Section 17A(c)(1), 15 U.S.C. 78q-1(c)(1).
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    The commenter also states that if a transfer agent has
contractually agreed to search for the lost securityholders of a
particular issuer, then no principal underwriter or selling broker of
that issuer's securities should be obligated to search for the same
lost securityholders.\46\ Section 17A(g) of the Exchange Act does not
limit its directive to extend Rule 17Ad-17 to a broker or dealer where
some third party may have separate cause to search for lost
securityholders that may be searched for by that broker or dealer,
whether that separate cause is private contract or otherwise. Rather,
the language of Section 17A(g) suggests that Congress intended transfer
agents, brokers, and dealers all to have search requirements with
respect to the securityholders on their records. Such interpretation of
the statute is consistent with the fact that brokers' and dealers'
records will have certain information about securityholders that is not
available from the records of transfer agents and vice versa. We
believe that Congress intended the Rule 17Ad-17 amendments to extend
the benefits of the search requirements to the additional
securityholders available on the records of brokers and dealers, not
limit such requirements to the securityholders available on the records
of transfer agents.
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    \46\ Letter from Annuity Committee, supra note 14.
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2. Requirements Applicable to Paying Agents
    New paragraph (c) of Rule 17Ad-17 implements the statutory
directive of Section 17A(g) of the Exchange Act by requiring, among
other things, that a paying agent must provide to each unresponsive
payee a single written notification no later than seven months

after the sending of any not yet negotiated check to inform the
unresponsive payee that the unresponsive payee has been sent a check
that has not yet been negotiated.
    The Commission is adopting Rule 17Ad-17 largely as proposed.
However, as described below, the Commission is adopting the term
``unresponsive payee'' throughout Rule 17Ad-17(c) in lieu of ``missing
securityholder'' because of the potential for confusion and
misinterpretation by paying agents and other parties. In addition, also
as described below, the Commission is providing additional guidance
about when certain of the requirements applicable to paying agents
apply, clarifying when notifications must be sent by paying agents, and
modifying paragraphs (c)(1) and (c)(3) from the text of the Proposing
Release to allow the requisite calculations to rely on days as well as
months.
a. Definition of ``Paying Agent''
    Consistent with the definition in Section 17A(g)(1)(D)(ii) of the
Exchange Act,\47\ new paragraph (c)(2) of Rule 17Ad-17 defines ``paying
agent'' to ``include any issuer, transfer agent, broker, dealer,
investment adviser, indenture trustee, custodian, or any other person
that accepts payments from an issuer of securities and distributes the
payments to the holders of the security.'' One commenter stated that
the rule's proposed definition of ``paying agent'' is very broad and
that not all of the term's covered entities are registered with the
Commission.\48\ The commenter also noted that the proposed definition's
use of the term ``any other person'' covers entities that are outside
the Commission's jurisdiction. This commenter further suggested that
the rule's definition of ``paying agent'' might be revised and
shortened, and because the rule will include the comprehensive term
``any other person,'' some of the other categories in the definition
could be eliminated.
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    \47\ Section 17A(g)(1)(D)(ii), 15 U.S.C. 78q-1(g)(1)(D)(ii).
    \48\ Letter from ABA, supra note 14.
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    The Commission understands that the term ``paying agent'' applies
broadly, but believes this expansive definition is consistent with
congressional intent in light of the precise language requiring a range
of specific entities to be included in the definition. While the
Commission recognizes that some of the entities covered by the
definition of ``paying agent'' are not required to be registered with
the Commission, the Commission believes that the broad definition of
``paying agent'' in Section 17A(g) of the Exchange Act provides the
Commission with authority with respect to such entities for purposes of
Rule 17Ad-17. Consequently, the Commission is adopting as proposed the
statutory language defining ``paying agent'' specifically drafted by
Congress for inclusion in Rule 17Ad-17.
    Another commenter stated that the term ``paying agent'' should be
defined to exclude any broker, dealer, transfer agent, investment
adviser, indenture trustee, custodian, or any other person that is not
contractually obligated to distribute money received from an issuer to
an issuer's securityholders.\49\ Because Congress specifically provided
a broad statutory definition of ``paying agent'' that expressly
includes entities that accept payments from issuers of securities and
distributes those payments to the holders of securities and does not
limit this definition to circumstances in which there is a contractual
obligation, the Commission is not adopting a more narrow definition of
paying agent than provided by the statute.\50\
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    \49\ Letter from Annuity Committee, supra note 14.
    \50\ Rule 17Ad-1(c)(2).
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    This commenter also suggests that the rule should exempt issuers
that contract with other paying agents from the requirement to provide
written notification to persons with checks that are not yet
negotiated. The Commission does not interpret the definition of
``paying agent'' to apply to an issuer that has contracted with another
entity to act as the issuer's ``paying agent'' and that is not itself
distributing payments to securityholders; accordingly, the Commission
does not believe a specific exemption is required.
b. Definition of ``Missing Securityholder'' and ``Unresponsive Payee''
    New paragraph (c)(3) of Rule 17Ad-17, consistent with Section
17A(g)(1)(D)(i) of the Exchange Act,\51\ provides that a securityholder
will be considered an ``unresponsive payee'' if a check that is sent to
the securityholder is not negotiated before the earlier of the paying
agent's sending the next regularly scheduled check or the elapsing of
six months after the sending of the not yet negotiated check.
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    \51\ 15 U.S.C. 78q-1(g)(1)(D)(i).
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    As adopted, paragraph (c)(3) uses the term ``unresponsive payee''
instead of the term ``missing securityholder,'' which is used by
Section 17A(g) of the Exchange Act and by the proposed rule. Five
commenters objected to the proposed rule's use of the term ``missing
securityholder,'' asserting that the new term: (1) Would be confused
with the rule's existing term ``lost securityholder''; (2) is a
misnomer because it does not actually involve securityholders that are
missing but simply securityholders who have uncashed checks; and (3)
should be replaced by a more descriptive term like ``unresponsive
payee'' or ``securityholder with an uncashed check.'' \52\ In light of
these comments, the Commission is adopting the term ``unresponsive
payee'' in connection with the requirements of Rule 17Ad-17. While
``missing securityholder'' was expressly set forth for purposes of this
rule by Congress in Section 17A(g)(1)(D)(ii) of the Exchange Act, the
potential for confusion with the term ``lost securityholder,'' as
defined since 1997 in paragraph (b)(2) of Rule 17Ad-17, by paying
agents and others is apparent from the comments. In addition, as a
defined term, an alternative term can be used without potentially
frustrating the intent of Congress in its carefully detailed
requirements applicable to paying agents. The Commission therefore
believes that the term ``unresponsive payee''--suggested by several
commenters--is a suitable alternative to ``missing securityholder.''
---------------------------------------------------------------------------

    \52\ Letters from STA, ICI, BNY Mellon, SIFMA, and
Computershare, supra note 14..
---------------------------------------------------------------------------

    One commenter suggested that the term ``unresponsive payee'' should
apply only to natural persons in order to be consistent with the
requirements applicable to ``lost securityholders.'' \53\ The
Commission agrees with the commenter that, with respect to lost
securityholders, paragraph (a)(3)(iii) of Rule 17Ad-17 limits the
required searches to natural persons.\54\ However, unlike with respect
to a lost securityholder, the paying agent will have no indication,
such as returned mail, that it has an incorrect address for the
unresponsive payee. The paying agents will only know that the check
sent to the investor has not been returned as undeliverable and that
the investor has not negotiated the check. Therefore, the notices
required by Rule 17Ad-17 could be properly sent to the investor's
address on the records of the paying agent without the need for a

database search to determine the investor's correct address. In
addition, Section 17A(g) of the Exchange Act provides no indication
that Congress intended to limit a paying agent's obligation to natural
persons. Accordingly, the Commission has determined not to limit the
meaning of ``unresponsive payee'' to natural persons.
---------------------------------------------------------------------------

    \53\ Letter from ICI, supra note 14. To avoid confusion, the
adopted term ``unresponsive payee'' is used throughout this
discussion, even though the comments referred to the proposed term
``missing securityholder''.
    \54\ See Rule 17Ad-17 Adopting Release, supra note 18 above
(limiting the search requirements of Rule 17Ad-17 to natural persons
not known to be deceased as the databases used to search for lost
securityholders when the rule was adopted in 1997 generally did not
contain information on heirs or estates and were limited to natural
persons).
---------------------------------------------------------------------------

    Two commenters suggested that the Commission clarify that a
securityholder may be deemed an unresponsive payee for purposes of
paragraph (c) of Rule 17Ad-17 for having failed to cash a check, but
that such status will not result in his being deemed a lost
securityholder for purposes of paragraph (a) unless that person
specifically meets the definition of ``lost securityholder'' in
paragraph (b)(2) of Rule 17Ad-17.\55\ The Commission agrees. The rule
as amended would not require a person to be deemed a lost
securityholder just because he has been classified as an unresponsive
payee. For a securityholder to be deemed a lost securityholder, the
securityholder must specifically meet the definition of ``lost
securityholder'' in paragraph (b)(2) of Rule 17Ad-17.
---------------------------------------------------------------------------

    \55\ Letters from ICI and SIFMA, supra note 14.
---------------------------------------------------------------------------

    A commenter asked how long a person who becomes an unresponsive
payee will remain in that status.\56\ Such status will cease when the
securityholder negotiates the check or checks that caused the
securityholder to be classified as an unresponsive payee. In response
to this comment, the Commission has revised paragraph (c)(3) of Rule
17Ad-17 to clarify this point.
---------------------------------------------------------------------------

    \56\ Letter from BNY Mellon, supra note 14.
---------------------------------------------------------------------------

    A commenter inquired about the situation where an unresponsive
payee either becomes a lost securityholder or is known to have
died.\57\ Under Rule 17Ad-17(c)(1), if an unresponsive payee would be
considered a lost securityholder by a transfer agent, broker, or
dealer, the paying agent would not be required to send the notice of an
unnegotiated check to the unresponsive payee until such time as the
paying agent obtains a good address to send the notice. At such time,
the investor would no longer be a lost securityholder. In response to
this comment, the Commission has revised the rule text of paragraph
(c)(1) of Rule 17Ad-17 to clarify this point. However, with respect to
an unresponsive payee that is known to have died, the paying agent
would still have the obligation to send the notice of an unnegotiated
check. The fact that a securityholder has died does not in and of
itself mean that there is not a good address to send the notice, and
such notice could be of benefit to the deceased securityholder's
estate. The paying agent will not know if and how checks ultimately
will be negotiated by the trustee or administrator of the estate.
---------------------------------------------------------------------------

    \57\ Letter from American Bankers, supra note 14. See also
Letter from ICI, supra note 14, with respect to the status of a
deceased person.
---------------------------------------------------------------------------

    This commenter also inquired about an unresponsive payee who has
received one or more checks from a paying agent on a monthly basis but
who has not negotiated any check.\58\ Specifically, the commenter
questioned whether there would be a notification requirement if the
unresponsive payee were to negotiate the checks before the ``six month
period has lapsed'' per paragraph (c)(3) of Rule 17Ad-17. We note that
if an unresponsive payee were to negotiate a check before the elapsing
of six months after the paying agent sent the check, Rule 17Ad-17 would
not require the paying agent to send the notice required in paragraph
(c)(1) of the rule for that check.
---------------------------------------------------------------------------

    \58\ Id.
---------------------------------------------------------------------------

c. Definition of ``Regularly Scheduled Check''
    The term ``regularly scheduled check'' in Section 17A(g)(1)(D)(i)
of the Exchange Act is not defined by the statute. One commenter
suggested that the term should refer to checks that securityholders
have made arrangements to have sent to them on a ``pre-specified,
regularly-scheduled basis'' and that the term should not include ad hoc
checks.\59\ Another commenter noted that unnegotiated checks from
paying agents are not necessarily related to scheduled interest and
dividend payments and may not even be regularly scheduled.\60\ A third
commenter suggested the notification requirement should apply only to
those checks sent to the securityholder by the paying agent pursuant to
its contractual obligation to pass along dividends and other
distributions from an issuer to the securityholder and should not apply
to unnegotiated checks sent by the paying agent to third parties on
behalf of the securityholder or to unregistered checks that constitute
the proceeds of a sale.\61\
---------------------------------------------------------------------------

    \59\ Letter from ICI, supra note 14.
    \60\ Letter from SIFMA, supra note 14.
    \61\ Letter from American Bankers, supra note 14.
---------------------------------------------------------------------------

    Congress, in drafting Section 17A(g)(1)(B) of the Exchange Act, did
not limit the meaning of ``regularly scheduled check'' to such
instruments as ``interest and dividend checks'' or mention established
``arrangements'' in this connection.\62\ In addition, Section 17A(g)(1)
is captioned ``Due Diligence for the Delivery of Dividends, Interest,
and Other Valuable Property Rights''. On the other hand, Congress did
refer to ``regularly scheduled checks'' in defining who would qualify
as an unresponsive payee, rather than simply ``checks.'' Therefore, for
purposes of Rule 17Ad-17, we are interpreting the term ``regularly
scheduled check'' to include not only checks for interest and dividend
payments but also any other regularly scheduled periodic payments from
an issuer of securities to be distributed to securityholders as a
class. Accordingly, the term ``regularly scheduled check'' would not
include checks for payment solely to an individual securityholder and
not to a class of securityholders pursuant to specific arrangements
established at the request of the securityholder or to third parties on
behalf of the securityholder.
---------------------------------------------------------------------------

    \62\ The Commission notes that a number of periodic
distributions by issuers, such as partnership distributions, may
technically not be interest or dividend payments.
---------------------------------------------------------------------------

d. Notification
    In the Proposing Release, the Commission proposed to incorporate
the statutory definition of ``missing securityholder'' from Section
17A(g)(1)(D)(i) into subparagraph (c)(3) of Rule 17Ad-17.\63\
Specifically, the proposed rule stated, ``[T]he securityholder shall be
considered a missing securityholder [i.e., an unresponsive payee] if a
check is sent to the securityholder and the check is not negotiated
before the earlier of the paying agent's sending the next regularly
scheduled check or the elapsing of six (6) months after the sending of
the not yet negotiated check.''
---------------------------------------------------------------------------

    \63\ Proposing Release, supra note 13.
---------------------------------------------------------------------------

    Two commenters stated that some regularly scheduled distributions
by paying agents are made on a monthly cycle.\64\ In such a situation,
they suggest that a securityholder who did not negotiate a check sent
to him or her could become an unresponsive payee within one month
(i.e., at the time of the next regularly scheduled check). One of the
commenters stated that this monthly interval would frequently overlap
the timeframe in which payees routinely negotiate their checks.\65\ The
other commenter likewise stated that, as a paying agent, it provides
many clients with services that include payment of a

monthly dividend.\66\ As an example, the commenter noted that if a
securityholder has mail held for himself or herself at one location
while he or she spends part of the year at another location, as many
retirees do, checks may not be delivered to--let alone negotiated by--
the payee before the next monthly check is sent. This commenter
suggested that it would be more practical to have a longer time for the
required notification of a check that was not negotiated and for the
triggering of ``unresponsive payee'' status in those circumstances. One
of these commenters recommended a minimum time of not less than 60 days
from the payable date of a dividend or from the sending of a check
before notification to an unresponsive payee would have to be made.\67\
---------------------------------------------------------------------------

    \64\ Letters from Computershare and BNY Mellon, supra note 14.
    \65\ Letter from Computershare, supra note 14.
    \66\ Letter from BNY Mellon, supra note 14.
    \67\ Letter from Computershare, supra note 14.
---------------------------------------------------------------------------

    The Commission notes that the paying agent would have to send only
one notification for a given check and that such notification could be
sent along with another check or other subsequent mailing. In addition,
the Commission notes that while a particular payee receiving monthly
checks may become an ``unresponsive payee'' after a single month, the
requirement to provide an actual notification to the payee allows a
full seven months following the sending of the unnegotiated check
(i.e., about six months in the case of an unnegotiated monthly check)
before the paying agent must send such notification. As clarified in
Rule 17Ad-17(c)(1), if the unresponsive payee negotiates the check in
that seven-month interval, he or she will no longer be an unresponsive
payee and no notification will need to be sent. Accordingly, the
Commission does not at this time believe there is a need to create an
initial 60-day period or other time frame before which notifications
would not be required. In any case, the timeline for qualifying as an
unresponsive payee and the related notification duty are statutory
requirements that are set forth, respectively, in Sections
17A(g)(1)(D)(i) and 17A(g)(1)(A) of the Exchange Act.\68\
---------------------------------------------------------------------------

    \68\ 15 U.S.C. 78q-1(g)(1)(D)(i) and 78q-1(g)(1)(A).
---------------------------------------------------------------------------

    Two commenters asked if a paying agent may issue one generic
notification to alert an unresponsive payee of multiple checks, perhaps
from different issuers, that remain unnegotiated for the seven-month
measuring period.\69\ Section 17A(g)(1)(A) of the Exchange Act requires
that the paying agent ``provide a single written notification to each
[unresponsive payee] that the [unresponsive payee] has been sent a
check that has not yet been negotiated.'' It is not clearly stated in
the statute whether the paying agent must provide: (1) A single written
notification to each unresponsive payee who has been sent a check that
has not yet been negotiated; or (2) a single written notification to
the unresponsive payee for each check that has been sent but has not
yet been negotiated. The Commission believes that the apparent
congressional purpose of Section 17A(g)(1)(A) is to help ensure that
securityholders receive and have the benefits of their distribution
checks, which can be accomplished through a notice covering one or
multiple checks. While a paying agent's per-check notice may focus a
securityholder's attention on each check, a notice covering multiple
checks may serve as a signal to a securityholder that there is an issue
with systems or methods used by that securityholder for negotiating
checks from that paying agent. Accordingly, we interpret the statutory
language as permitting either approach to be used by a paying agent,
provided that the applicable time requirements of Rule 17Ad-17--in
particular, the seven-month measuring interval--are met with respect to
each individual check. For a notice covering multiple checks, this
interpretation means that the notification must sufficiently identify
each not yet negotiated check and that the notice must be sent to the
unresponsive payee no later than seven months after the sending of the
oldest not yet negotiated check that is covered by the notice.
---------------------------------------------------------------------------

    \69\ Letters from ICI and BNY Mellon, supra note 14.
---------------------------------------------------------------------------

    Commenters further suggested that a check that has not yet been
negotiated should be excluded from notification requirements if the
check is ``redeposited'' into the securityholder's account. One
commenter suggested that such check redepositing should occur within
six months of its issuance.\70\ The Commission understands these
comments to mean that the checks or equivalent funds would be deposited
into the securityholders' brokerage or other accounts with no record of
the holders' potential status as unresponsive payees. While we
recognize that the deposit of a previously issued check into the
account of a securityholder would have the effect of assuring that the
funds represented by the check are no longer held in abeyance and are
available to benefit the securityholder, there is no evidence to
suggest that it was Congress' intent to establish or encourage such a
depository arrangement for a securityholder where one did not exist
prior to the transmittal of the check or checks subject to redeposit.
To the extent a securityholder has established standing or other prior
instructions for any check or checks to be deposited into its account
in a particular manner, a check deposited in compliance with such
instructions may properly be considered to have been negotiated by the
securityholder for the purpose of Rule 17Ad-17. However, there is no
evidence to suggest Congress intended to allow paying agents to avoid
the notification requirements of Rule 17Ad-17 simply by depositing the
monetary equivalent of the uncashed check into an account for the
unresponsive payee.
---------------------------------------------------------------------------

    \70\ Letters from ICI and SIFMA, supra note 14.
---------------------------------------------------------------------------

    Another commenter observed that broker-dealers provide periodic
statements to customers that include all disbursements, including
checks, and that such statements could serve as the notifications
contemplated by the rule amendments.\71\ While the Commission
recognizes that generally all transactions, including checks, are
detailed in brokers' periodic statements, we do not believe that such
all-inclusive statements in their present form would present the kind
of focused notification of uncashed checks that Congress intended in
enacting Section 17A(g)(1)(A).
---------------------------------------------------------------------------

    \71\ Letter from ICI, supra note 14.
---------------------------------------------------------------------------

    Three commenters requested clarification on whether the written
notification would include electronic communications.\72\ Consistent
with our prior guidance on electronic delivery of customer disclosures
and confirmations, a paying agent may provide the written notification
electronically if the customer has affirmatively consented to receiving
disclosures generally in such manner.\73\
---------------------------------------------------------------------------

    \72\ Letters from ICI, SIFMA, and American Bankers, supra note
14.
    \73\ ``Use of Electronic Media by Broker-Dealers, Transfer
Agents, and Investment Advisers for Delivery of Information;
Additional Examples Under the Securities Act of 1933, Securities
Exchange Act of 1934, and Investment Company Act of 1940,'' 61 FR
24644 (May 15, 1996).
---------------------------------------------------------------------------

    One of these commenters suggested that instead of using the
statutory terms 6 months and 7 months as measuring times, the rule
could use 180 calendar days and 210 calendar days, respectively, which
the commenter suggests are easier to accommodate in accounting periods
and in programming systems. Accordingly, to accommodate variances in
entities' accounting procedures and systems, the Commission is adopting
language to provide the option of using months or days. Rule 17Ad-
17(c), as adopted, allows ``6 months (or 180 days)'' and ``7 months (or
210 days).''

e. Exemption for Checks Less Than $25
    New paragraph (c)(4) of Rule 17Ad-17, consistent with Exchange Act
Section 17A(g)(1)(B), excludes a paying agent from the notification
requirements where the value of the not yet negotiated check is less
than $25.\74\ One commenter suggested that significant cost savings
might accrue by increasing the rule's notification threshold on
uncashed checks to $100, instead of $25.\75\ The Commission has
determined not to modify the $25 amount established by Section 17A(g)
of the Exchange Act for purposes of paragraph (c)(4) of Rule 17Ad-17 at
this time, which would require deviating from a specific de minimis
level recently selected by Congress.
---------------------------------------------------------------------------

    \74\ Section 17A(g)(1)(B), 15 U.S.C. 78q-1(g)(1)(B).
    \75\ Letter from SIFMA, supra note 14.
---------------------------------------------------------------------------

f. Minimization of Disruptions
    In the Proposing Release, the Commission requested comment on
Congress' directive in Section 17A(g)(2) that ``[t]he Commission shall
seek to minimize disruptions to current systems used by or on behalf of
paying agents to process payments to account holders and avoid
requiring multiple paying agents to send written notifications to a
missing security holder [i.e., unresponsive payees] regarding the same
not yet negotiated check.'' Two commenters responded that, while there
would be certain increases in programming and administrative costs,
they do not believe the amendments would cause any significant
disruptions.\76\ With regard to paying agents, these commenters stated
that the obligation to notify would fall only on the paying agent that
holds the relevant records and that, accordingly, it would be unlikely
that multiple paying agents would be sending redundant notices about
the same checks to securityholders. We agree with these commenters that
it would be unlikely for multiple paying agents to be sending redundant
notices about the same checks. The Commission also agrees with the
commenters' views that the rule amendments should not cause significant
disruptions.
---------------------------------------------------------------------------

    \76\ Letters from STA and ICI, supra note 14.
---------------------------------------------------------------------------

g. State Escheatment Laws
    New paragraph (c)(5) of Rule 17Ad-17, as required by Exchange Act
Section 17A(g)(1)(C),\77\ provides that the requirements of paragraph
(c)(1) of Rule 17Ad-17 ``shall have no effect on state escheatment
laws.'' Two commenters observed that future timelines for state
escheatment practices are at some point likely to conflict with the
timeline for notifying missing securityholders.\78\ These commenters
suggested that the Commission clarify in the adopting release how firms
should apply the rule if a conflict should arise with state escheatment
laws. Rather than address hypothetical situations of what may happen if
a conflict arises at some future time between federal and state law,
the Commission will consider how to address any such actual conflict at
the time it is made aware that such a conflict exists.
---------------------------------------------------------------------------

    \77\ Section 17A(g)(1)(C), 15 U.S.C. 78q-1(g)(1)(C).
    \78\ Letters from WFA and SIFMA, supra note 14. Another
commenter, Mary Patman, observed that one way to resolve escheatment
problems is ``to require the shareholder to be informed about
unclaimed property laws and educate them on how to prevent their
investments from getting turned over to the state in the first
place,'' but she also indicated that this was probably impossible.
Letter from Ms. Putman, supra note 14.
---------------------------------------------------------------------------

    One commenter stated that language in footnote 15 of the Proposing
Release constituted an effort by the Commission to ``eliminate federal
preemption subtly.'' \79\ Footnote 15 of the Proposing Release stated,
``Generally, after expiration of a certain period of time, which varies
from state to state but is usually three to seven years, an issuer or
its transfer agent must remit abandoned property (e.g., securities and
funds of lost securityholders) to a state's unclaimed property
administrator pursuant to the state's escheatment laws.'' \80\ Footnote
15 of the Proposing Release was not a statement concerning federal
preemption but instead was intended to be merely a general statement of
the operation of state escheatment law. Similarly, the Commission is
not in this release or in Rule 17Ad-17 making any statement regarding
federal preemption or regarding preemption's relationship to state
escheatment laws.
---------------------------------------------------------------------------

    \79\ Letter from Prescott Lovern, Esq., supra note 14.
    \80\ Proposing Release, supra note 13. This footnote is
replicated herein at note 21.
---------------------------------------------------------------------------

3. Compliance Date
    Three commenters requested clarification concerning the effective
and compliance dates of the amendments to Rule 17Ad-17.\81\ One of
these commenters suggested that compliance with the amended rule be
required 12 months after its approval date,\82\ as proposed, and the
other two commenters suggested that compliance with the amended rule be
required 18 months after the approval date to allow added time for the
development of new systems.\83\
---------------------------------------------------------------------------

    \81\ Letters from STA, ICI, and Annuity Committee, supra note
14.
    \82\ Letter from STA, supra note 14.
    \83\ Letters from ICI and Annuity Committee, supra note 14.
---------------------------------------------------------------------------

    In response to the comments, the Commission is making clear that
the rules will be effective 60 days after publication in the Federal
Register and that the compliance date will be twelve months after
publication in the Federal Register. The compliance date is the date on
which all entities subject to the requirements of the rule must be in
compliance with the rule. Although the Commission is aware that changes
to systems require time to plan and implement, we do not find that the
two commenters who requested additional time sufficiently justified
their need in light of the statutory directive and the policy goals it
apparently seeks to advance. Therefore, we are adopting the compliance
date substantially as proposed.
    One commenter asked whether the rule would apply retroactively,
meaning that notifications might be required for checks already
outstanding.\84\ The Commission notes that the changes to the rule will
apply only prospectively.
---------------------------------------------------------------------------

    \84\ Letter from STA, supra note 14.
---------------------------------------------------------------------------

4. Rule 15b1-6: Notice to Brokers and Dealers of Rule Amendments
    Another commenter observed that the rule covers brokers, dealers,
transfer agents, and others who may not be aware that the rule will
apply to them.\85\ It suggests a separate rule, referencing Rule 17Ad-
17, be added to the Commission's rules under Section 15(b) of the
Exchange Act, which applies to brokers and dealers, to keep brokers and
dealers apprised of the requirements. The Commission agrees with this
commenter's suggestion and is adopting a new technical rule, Rule 15b1-
6, which will provide ongoing notice to brokers and dealers of their
obligations under Rule 17Ad-17.\86\
---------------------------------------------------------------------------

    \85\ Letter from ABA, supra note 14.
    \86\ Id.
---------------------------------------------------------------------------

    The Commission is adopting Rule 15b1-6 simply to provide ongoing
notice to brokers and dealers of amendments to Rule 17Ad-17 that affect
brokers and dealers, and it imposes no independent obligation on any
party. \87\ Rule 15b1-6 is solely a mechanism to provide additional
notice--on an ongoing basis--to certain registrants regarding
amendments to Rule 17Ad-17 that will now impose substantive obligations
on them as

described in the Proposing Release and this release.\88\
---------------------------------------------------------------------------

    \87\ See 6 U.S.C. 553(b).
    \88\ The adoption of Rule 15b1-6 does not require analysis under
the Regulatory Flexibility Act or under the Small Business
Regulatory Enforcement Fairness Act. 5 U.S.C. 601 and 5 U.S.C. 804.
---------------------------------------------------------------------------

5. Recordkeeping
    Currently, Rule 17Ad-17(c) \89\ requires that every recordkeeping
transfer agent shall maintain records to demonstrate compliance with
the requirements of the rule (including written procedures that
describe the transfer agent's methodology for complying) and requires
that such records be maintained for a period of not less than three
years with the first year in an easily accessible place.\90\ These
recordkeeping requirements have been part of Rule 17Ad-17 since its
adoption in 1997.\91\ In the Proposing Release, the Commission proposed
redesignating paragraph (c) as paragraph (d) and amending that
paragraph to require brokers, dealers, and paying agents (in addition
to transfer agents) to maintain such records. The Commission also
proposed a conforming amendment to Rule 17Ad-7(i) \92\ so that it would
cross-reference redesignated paragraph (d), rather than paragraph (c),
of Rule 17Ad-17. The Commission received no comments on these proposed
recordkeeping amendments and is adopting them as proposed, with a
technical change to avoid unnecessarily duplicative language between
Rule 17Ad-7(i) and Rule 17Ad-17(d).\93\
---------------------------------------------------------------------------

    \89\ 17 CFR 240.17Ad-17(c).
    \90\ Pursuant to Rule 17Ad-7(i), 17 CFR 240.17Ad-7(i), transfer
agents have had to maintain records to show their compliance with
Rule 17Ad-17. This same requirement for transfer agents, brokers,
dealers, and paying agents is now stated explicitly in amended Rule
17Ad-17. In order to maintain consistency with amended Rule 17Ad-17,
we have adopted a technical change to Rule 17Ad-7(i) so that it will
cross-reference new Rule 17Ad-17(d) rather than superseded Rule
17Ad-17(c).
    \91\ Rule 17Ad-17 Adopting Release, supra note 18, Section II.B
at pages 52232-52233.
    \92\ 17 CFR 240.17Ad-7(i).
    \93\ Specifically, Rule 17Ad-17(d) now requires transfer agents,
brokers, and dealers to ``retain such records in accordance with
Rule 17Ad-7(i)'', rather than ``for a period of not less than three
(3) years with the first year in an easily accessible place''.
---------------------------------------------------------------------------

6. Title
    One commenter suggested that the Commission's proposed name for
Rule 17Ad-17 (``Transfer agents', brokers', and dealers' obligation to
search for lost securityholders; paying agents' obligation to search
for missing securityholders'') is too long.\94\ The commenter suggests:
``Lost and missing securityholders'' as the title for Rule 17Ad-17. The
Commission agrees that a shorter title is appropriate and is adopting
the title ``Lost securityholders and unresponsive payees'' for amended
Rule 17Ad-17.
---------------------------------------------------------------------------

    \94\ Letter from ABA, supra note 14.
---------------------------------------------------------------------------

III. Paperwork Reduction Act

    As explained in the Proposing Release, certain provisions of
proposed amendments to Rule 17Ad-17 required a new and mandatory
``collection of information'' within the meaning of the Paperwork
Reduction Act of 1995 (``PRA'').\95\ An agency may not conduct or
sponsor, and a person is not required to respond to, a collection of
information unless it displays a currently valid control number.\96\ In
accordance with 44 U.S.C. 3507 of the PRA, the Commission submitted the
requirements of the proposed amendments to Rule 17Ad-17 entailing a
``collection of information'' to the Office of Management and Budget
(``OMB'') for review in accordance with 44 U.S.C. 3507 and 5 CFR
1320.11, and the Commission published notice requesting public comment
on such requirements in the Proposing Release.\97\
---------------------------------------------------------------------------

    \95\ 44 U.S.C. 3501 et seq.
    \96\ 44 U.S.C. 3506(c)(1).
    \97\ For Proposing Release, see supra note 13. We note that
neither Rule 15b1-6 nor the amendments to Rule 17Ad-7 require any
``collection of information'' within the meaning of the PRA.
---------------------------------------------------------------------------

    The control number for this release is OMB Control Number 3225-0469
and the title is ``Transfer Agents' Obligation to Search for Lost
Securityholders (17 CFR 240.17Ad-17).'' The Commission anticipates
changing the title of the collection to ``Obligation to Search for Lost
Securityholders and Notify Unresponsive Payees'' to reflect the
amendments to Rule 17Ad-17 and the change in the title of the rule.\98\
---------------------------------------------------------------------------

    \98\ See supra Section II.B.6.
---------------------------------------------------------------------------

A. Summary of Collection of Information

    As adopted, the amendments to Rule 17Ad-17 require a new and
mandatory ``collection of information'' within the meaning of the PRA.
This collection of information consists of: (1) Brokers and dealers
collecting information in order to comply with new requirements to
search for lost securityholders under paragraph (a) of Rule 17Ad-17;
(2) paying agents collecting information in order to comply with new
requirements to provide notifications to unresponsive payees under
paragraph (c) of Rule 17Ad-17; and (3) brokers, dealers, and paying
agents making and maintaining records under paragraph (d) of Rule 17Ad-
17 to demonstrate compliance with the requirements of Rule 17Ad-17,
including written procedures which describe their methodology for
complying.\99\ The records required by paragraph (d) must be maintained
for a period of not less than three years, with the first year in an
easily accessible place, consistent with Rule 17Ad-7(i) under the
Exchange Act.
---------------------------------------------------------------------------

    \99\ For the definition of ``paying agent,'' see discussion at
Section II.B.2.a, supra. For the definition of ``unresponsive
payee,'' see discussion at Section II.B.2.b, supra.
---------------------------------------------------------------------------

B. Use of Information

    Brokers and dealers will use the information collected pursuant to
paragraph (a) of Rule 17Ad-17--namely, information regarding the
accounts of lost securityholders and the addresses of lost
securityholders--to engage in searches for lost securityholders. Paying
agents will use the information collected pursuant to paragraph (c) of
Rule 17Ad-17--namely, information regarding the accounts of
unresponsive payees and the status of their negotiations of checks sent
by the paying agent--to provide notifications to unresponsive payees
that they have been sent checks but have not negotiated them.
    The Commission will use the information collected under paragraph
(d) of Rule 17Ad-17 to monitor the records made and maintained by every
recordkeeping transfer agent, broker or dealer, and paying agent to
demonstrate compliance with the requirements set forth in Rule 17Ad-17.
Such records will include written procedures that describe the entity's
methodology for complying with the rule.

C. Respondents

    The Commission estimates that approximately 4,705 brokers and
dealers would be subject to paragraph (a) of Rule 17Ad-17, which would
require them to do certain database searches for their lost
securityholders. While applicable to all brokers and dealers, we are
estimating that, as a practical matter, paragraph (a) will apply
primarily to those brokers and dealers that carry securities accounts
for customers (i.e., carrying firms), of which there are about 301
brokers and dealers.\100\
---------------------------------------------------------------------------

    \100\ There are approximately 4,705 brokers and dealers
registered with the Commission, according to December 31, 2011 FOCUS
Report data. Of these registrants, 4,404 brokers and dealers claimed
exemptions from Rule 15c3-3 on their FOCUS Reports. Accordingly, the
Commission estimates that there are approximately 301 carrying
brokers and dealers (4,705 minus 4,404 equals 301).
---------------------------------------------------------------------------

    The Commission estimates that approximately 28,577 entities--
issuers, transfer agents, brokers, dealers, indenture trustees, and
custodians--potentially will be subject to the requirements of
paragraph (c) of Rule 17Ad-17, which would require them to

send certain notifications to unresponsive payees.\101\ However, we
estimate that only approximately 3,035 entities accept payments from an
issuer of a security and distribute those payments to the holders of
the security, thereby qualifying as ``paying agents'' for purposes of
paragraph (c).\102\ In general, the Commission believes that in this
specialized area most paying agents will consist of the large brokers
and dealers and large transfer agents (including bank transfer agents),
firms that typically serve as financial intermediaries between issuers
and securityholders.
---------------------------------------------------------------------------

    \101\ As discussed in Sections IV and V.C.2 of the Proposing
Release and in Section III.D.2 below, the 28,577 entities comprise
approximately 10,379 issuers that file reports with the Commission,
4,705 brokers and dealers registered with the Commission (see supra
note 100), 536 transfer agents registered with the Commission,
11,797 investment advisors registered with the Commission, 264
indenture trustees, and 896 custodians.
    \102\ As discussed below at Section III.D.2, the estimate of
3,035 paying agents comprises 1,038 issuers, 301 brokers and
dealers, 536 transfer agents, 264 indenture trustees, and 896
custodians. While approximately 10,379 issuers file reports with the
Commission, we interpret the statutory definition of ``paying
agent'' to include only such issuers that ``accept[] payments from
an issuer of a security and distributes payments to the holders of
the security,'' a clause that the Commission's experience with the
mechanics of such payments indicates will exclude the vast majority
of issuers. Accordingly, we estimate that the definition will
exclude approximately 90% of issuers, leaving 10%--or approximately
1,038 issuers--as paying agents. Similarly, based on the
Commission's experience with payments to holders of securities, we
expect that not all broker-dealers will act as paying agents;
rather, such functions will largely be performed by carrying firms.
Accordingly, we assume that all estimated 301 carrying firms will be
paying agents. See supra note 100.
---------------------------------------------------------------------------

    All brokers, dealers, and paying agents--an estimated total of
7,439 entities \103\--also will be subject to the recordkeeping
provisions of paragraph (d) of Rule 17Ad-17, which requires maintaining
records to demonstrate compliance with Rule 17Ad-17, including written
procedures that describe the entity's methodology for compliance. Such
records must be retained for not less than three years, the first year
in an easily accessible place.
---------------------------------------------------------------------------

    \103\ The estimate of 7,439 entities comprises 1,038 issuers,
4,705 brokers and dealers (both carrying firms and non-carrying
firms), 536 transfer agents, 264 indenture trustees, and 896
custodians.
---------------------------------------------------------------------------

D. Revisions to Reporting and Burden Estimates

    In the Proposing Release, the Commission initially estimated for
the purposes of Rule 17Ad-17 that, on an annual basis: (1)
Approximately 250,000 searches by brokers and dealers would be required
by paragraph (a) of Rule 17Ad-17 as proposed, with each search taking
approximately five minutes; and (2) approximately 50,000 notifications
by an estimated 1,000 paying agents would be required by paragraph (c)
of Rule 17Ad-17 as proposed, with each notification taking
approximately three minutes. We further estimated that these searches
and notifications would require, respectively, 500 and 100 hours of
recordkeeping time. Accordingly, we estimated that the total estimated
burden of the proposed amendments to Rule 17Ad-17 would be 23,933
hours.\104\
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    \104\ 250,000 searches of five minutes apiece would require
20,833 hours and 50,000 notifications of three minutes apiece would
require 2,600 hours. Accordingly, the total burden would be 23,933
hours (20,833 hours + 2,600 hours + 600 hours of recordkeeping
time). Proposing Release, supra note 13, at 16,710.
---------------------------------------------------------------------------

    In response to the Proposing Release, we received comments that
costs stated in the Proposing Release ``likely are greater than
estimated,'' \105\ that the ``hours of work'' and ``estimated costs are
low,'' \106\ and that ``costs may be higher'' than estimated.\107\ In
light of these comments and similar ones, the Commission has reexamined
the estimates in the Proposing Release and revised them as described
below.
---------------------------------------------------------------------------

    \105\ Letter from Wells Fargo, supra note 14.
    \106\ Letter from SIFMA, supra note 14.
    \107\ Letter from ABA, supra note 14.
---------------------------------------------------------------------------

1. Paragraph (a) of Rule 17Ad-17 (Application of Rule 17Ad-17 to
Brokers and Dealers)
    Under paragraph (a) of the amendments to Rule 17Ad-17, brokers and
dealers will now be required to conduct certain database searches for
lost securityholders. Such database searches must be conducted without
charge to the lost securityholders. In the Proposing Release, the
Commission stated that much of the information required to be collected
in order to effectuate such searches (such as the TINs of lost
securityholders) is already maintained by brokers and dealers;
accordingly, in many cases there should not be an additional cost to
the broker or dealer to obtain the required information. We initially
assumed that, with automated equipment and much of the information
required to be collected already in the possession of brokers and
dealers, lost securityholder searches could be performed in about two
minutes. We increased the estimated search time in the Proposing
Release to five minutes to allow for additional contingencies that may
occur in connection with database searches.
    In the Proposing Release, the Commission initially estimated that
there were 5,063 broker-dealers registered with the Commission, who
would perform approximately 250,000 searches per year--that is,
approximately 49 searches for lost securityholders per broker or dealer
per year (250,000 divided by 5,063 equals 49 searches per broker-
dealer), or less than one search per broker-dealer per week. However,
as noted in section III.C above, we anticipate--and the Proposing
Release assumed--that Rule 17Ad-17 will as a practical matter apply
mainly to brokers and dealers that carry securities accounts for
customers (i.e., carrying firms), which tend to be the larger firms.
    In reviewing these estimates, some commenters noted that burdens
generally may be higher than anticipated in the Proposing Release.
Wells Fargo noted that some project costs, such as printing and
operating databases, tend to include associated expenses that are not
included in the broader categories such as ``labor.'' \108\ The ABA
commented that the ``costs may be higher than estimated,'' noting
further that searches for lost securityholders will apply to all
brokers and dealers, of which there are more than 5,000, and, while
they are assumed to be already performing such work on their own, the
ABA questioned whether some of them may lack the necessary systems and
may need to make additional financial outlays in this connection.\109\
---------------------------------------------------------------------------

    \108\ Letter from Wells Fargo, supra note 14.
    \109\ Letter from ABA, supra note 14.
---------------------------------------------------------------------------

    The Commission continues to believe that carrying firms, which we
estimate to number approximately 301,\110\ represent the population of
brokers and dealers most likely to be affected by the burdens
associated with paragraph (a) of Rule 17Ad-17. In addition, such
brokers and dealers tend to be larger than the overall population of
firms and are the ones most likely to have the systems and processes in
place for dealing with searches for securityholders, including lost
securityholders. In fact, members of the broker-dealer community have
stated that these new requirements are unnecessary because broker and
dealers already know how to keep track of their customers. We also note
that brokers and dealers may enter into commercial arrangements among
themselves--such as those between an introducing and a carrying firm--
to help ensure compliance with the requirements of Rule 17Ad-17 without
unnecessarily burdensome system builds, just as they do in other
aspects of their business.\111\
---------------------------------------------------------------------------

    \110\ See supra note 100.
    \111\ See supra note 33 and accompanying text.

---------------------------------------------------------------------------

    With respect to specific burden estimates, commenters did not
address the five minute estimate for the search time under paragraph
(a) of Rule 17Ad-17, but instead suggested that we should increase our
estimates of the number of searches that would be required. In
particular, SIFMA stated, ``SIFMA member firms estimate that the number
of searches and notifications could be significantly more than the
Commission's stated estimates--perhaps as much as four times more.''
\112\ After evaluating these comments, the Commission is retaining the
estimated search time but has determined to increase the estimated
number of searches per year by brokers and dealers in paragraph (a) of
Rule 17Ad-17 from 250,000 to 650,000,\113\ which increases the
estimated total annual hourly burden from 20,833 hours (250,000
searches times five minutes, divided by 60 minutes) to 54,160 hours
(650,000 searches times five minutes, divided by 60 minutes).\114\ The
revised hourly burden estimate is the equivalent--on average--of
approximately 42 searches per carrying firm per week (650,000 searches
divided by 301 carrying firms divided by 52 weeks equals 41.5 searches
per carrying firm per week) or approximately 9 searches per carrying
firm per business day (650,000 searches divided by 301 carrying firms
divided by 250 business days equals 8.6 searches per carrying firm per
day).\115\
---------------------------------------------------------------------------

    \112\ Letter from SIFMA, supra note 14.
    \113\ The estimate of 250,000 searches was based on initial
discussions with participants in the securities industry. See
Proposing Release, supra note 13, Section IV.A. The increase to
650,000 searches is based on the subsequent feedback from
commenters, who suggested that the estimates might be ``as much as
four times more.'' See, e.g., letter from SIFMA, supra note 14.
    \114\ See Proposing Release, supra note 13, Section IV.A.
    \115\ While calculating averages for purposes of this analysis,
the Commission recognizes that searches may in fact be clustered
around certain dates, such as dates established by a firm's internal
policies and procedures for conducting searches or dates established
by Rule 17Ad-17 itself.
---------------------------------------------------------------------------

2. Paragraph (c) of Rule 17Ad-17 (Requirements Applicable to Paying
Agents)
    Under amended paragraph (c) of Rule 17Ad-17, a paying agent must
provide not less than one written notification to each unresponsive
payee no later than seven months after such securityholder has been
sent a check that has not yet been negotiated. The notification may be
sent with a check or other mailing subsequently sent to the
unresponsive payee but must be provided no later than seven months
after the sending of the not yet negotiated check. In the Proposing
Release, the Commission stated that the burden for issuing a
notification to an unresponsive payee would be modest, approximately
three minutes, given the existence of automated systems that can be
used for these purposes in the entities expected to be affected by the
amendments to Rule 17Ad-17.\116\
---------------------------------------------------------------------------

    \116\ Proposing Release, Section IV.C, supra note 13. The
estimate was based on discussions with industry participants.
---------------------------------------------------------------------------

    In the Proposing Release, the Commission initially estimated that
there would be 1,000 entities acting as paying agents that would be
affected by paragraph (c) of Rule 17Ad-17, and that those entities
would issue approximately 50,000 notifications per year is equivalent--
that is, 50 notifications per paying agent per year (50,000
notifications per year divided by 1,000 paying agents equals 50
notifications per paying agent per year), or fewer than one
notification per paying agent per week (50 notifications per paying
agent per year divided by 52 weeks per year equals 0.96 notifications
per week).
    Based on the comments described above about burdens being higher
than estimated in the Proposing Release,\117\ the Commission has
determined to increase both its estimate of the number of paying agents
and its estimate of the number of notifications that would be issued by
such paying agents. The Commission's initial estimate that only 1,000
entities would be affected by paragraph (c) of Rule 17Ad-17 is
equivalent to approximately 3.5% of the total estimate of 28,577 paying
agent candidates estimated in the Proposing Release (1,000 divided by
28,577 equals 3.5%).\118\ To better account for the perspective of
commenters and drawing on Commission experience with the mechanics of
payments to securityholders, we have increased the estimate of paying
agents to 3,035 by assuming that: (1) All estimated 536 transfer
agents, estimated 264 indenture trustees, and estimated 896 custodians
included in the 28,577 entities will be paying agents; (2) only the
estimated 301 brokers and dealers that are carrying firms (who are
typically the largest firms with the capacity to manage payments to
securityholders) will be paying agents; and (3) only an estimated 1,038
of issuers that file reports with the Commission will be paying agents
(10,379 multiplied by 0.10 equals 1,038).\119\
---------------------------------------------------------------------------

    \117\ Letters from ABA, SIFMA, and Wells Fargo, supra note 14.
    \118\ The 28,577 entities comprise approximately 10,379 issuers
that file reports with the Commission, 4,075 brokers and dealers
registered with the Commission, 536 transfer agents registered with
the Commission, 11,797 investment advisors registered with the
Commission, 264 indenture trustees, and 896 custodians. With the
exception of the estimate of brokers and dealers, which is based on
December 31, 2011, FOCUS Report data (see supra note 100), these
estimates are drawn from various Commission sources as of January
2011. The Proposing Release estimated a total paying agent
population of 28,935 entities because it used an older estimate of
5,063 brokers and dealers.
    We emphasize that all of these populations they can be subject
to substantial variations over time. The Commission also notes that
the statutory definition of ``paying agent'' includes ``any other
person'' after specifying all of the categories of financial
entities already included in the Commission's estimate of the
potential universe of paying agents. Accordingly, we anticipate that
only a de minimis number of entities not already covered by one of
the named categories would be deemed ``paying agents'' and have
therefore assumed no such persons for purposes of this analysis.
    \119\ While approximately 10,379 issuers file reports with the
Commission, we interpret the statutory definition of ``paying
agent'' to include only such issuers that ``accept[] payments from
an issuer of a security and distributes payments to the holders of
the security,'' a clause that the Commission's experience with the
mechanics of such payments indicates will exclude the vast majority
of issuers.
---------------------------------------------------------------------------

    In addition, based on the comments received regarding the potential
burden of paragraph (c) of Rule 17Ad-17 and the increased estimate in
the number of paying agents, we are also increasing the estimated
number of annual notifications by paying agent. Commenters did not
address our estimated time of three minutes for each unresponsive payee
notification, and the Commission has determined to retain this
notification time. Accordingly, the Commission is increasing the number
of notifications that it estimates will be issued by paying agents each
year from 50,000 to 758,750, which is the equivalent of approximately
one notification being made per paying agent per business day (1
notification multiplied by 3,035 paying agents multiplied by 250
business days).\120\ The revised number of notifications results in an
increase in the estimated total annual hourly burden on paying agents
from 2,500 hours (50,000 notifications times three minutes, divided by
60 minutes) to 37,938 hours (758,750 notifications times three minutes,
divided by 60 minutes).
---------------------------------------------------------------------------

    \120\ See supra note 114 regarding the clustering of these
notifications in practice.
---------------------------------------------------------------------------

3. Paragraph (d) of Rule 17Ad-17 (Recordkeeping)
    Amended paragraph (d) of Rule 17Ad-17 will now requires brokers,
dealers, and paying agents that are subject to paragraph (a) and/or
paragraph (c) of the rule to maintain records to demonstrate their
compliance with the rule, including written procedures which describe
their

methodology for complying. The records required by the amended rule
must be maintained for a period of not less than three years, with the
first year in an easily accessible place, consistent with Rule 17Ad-
7(i) under the Exchange Act.
    Based on discussions with market participants, we initially
estimated in the Proposing Release that the annual burden for making
and keeping these records, which should be processed electronically,
would be approximately one hour for every 500 lost securityholder
accounts and one hour for every 500 unresponsive payee accounts. Based
on this incremental burden, we estimated that the total recordkeeping
burden would be approximately 600 hours (250,000 lost securityholders
searches divided by 500 accounts plus 50,000 notifications to
unresponsive payees divided by 500 accounts, times 1 hour).
    We received no specific comment on this incremental burden estimate
of one hour, and we continue to believe it appropriate. As described
above, however, the Commission is increasing its estimate of the number
of searches that will be undertaken for lost securityholders to 650,000
searches and is increasing its estimate of the number of notifications
that will be sent to unresponsive payees to 758,750. Accordingly, we
are increasing our estimate of the total recordkeeping burden as a
result of the amendments to Rule 17Ad-17 from approximately 600 hours
to approximately 2,818 hours: 1,300 hours with respect to searches for
lost securityholders (650,000 searches divided by 500 accounts, times 1
hour) and 1,518 hours with respect to notifications to unresponsive
payees (758,750 notifications divided by 500 accounts, times 1 hour).
4. Total Revised Estimated Burden
    In summary, the total revised estimated burden resulting from the
amendments to Rule 17Ad-17 and based on the assumptions and estimates
described above would be 94,916 hours: 54,160 hours associated with the
650,000 searches expected to be undertaken by brokers and dealers
pursuant to the amendments to paragraph (a) of Rule 17Ad-17; 37,938
hours associated with the 758,750 notifications to unresponsive payees
expected to be made by paying agents pursuant to the amendments to
paragraph (c) of Rule 17Ad-17; and 2,818 hours associated with the
making and keeping of records anticipated to be necessary for brokers,
dealers, and paying agents to comply with the amendments to Rule 17Ad-
17 under paragraph (d) of the rule (54,160 hours plus 37,938 hours plus
2,818 hours).

E. Collection of Information Is Mandatory

    All collections of information pursuant to Rule 17Ad-17 will be
mandatory.

F. Confidentiality

    The information collected under the amendments to Rule 17Ad-17
would be generated mainly from the internal records of brokers,
dealers, and paying agents. The Commission expects that some of this
information, if included in a filing with the Commission, would be
deemed confidential to the extent permitted by law with respect to such
filing. Additionally, with respect to other information collected under
the amendments and included in a filing with the Commission, a broker,
dealer, or paying agent can request to the Commission that the
information be kept confidential.\121\ If such a request is made, the
Commission will ordinarily keep the information confidential to the
extent permitted by law.\122\
---------------------------------------------------------------------------

    \121\ See 17 CFR 200.83. Additional information about how to
request confidential treatment of information submitted to the
Commission is available on the Commission's Web site at: http//
www.sec.gov/foia/howfo2.htm#privacy.
    \122\ See, e.g., Exchange Act Section 24, 15 U.S.C. 78x
(governing the public availability of information obtained by the
Commission) and 5 U.S.C. 552 et seq.
---------------------------------------------------------------------------

G. Record Retention Period

    Brokers, dealers, and paying agents will be required to retain
records and information under Rule 17Ad-17 for a period of three years,
with the first year in an easily accessible place.\123\
---------------------------------------------------------------------------

    \123\ The recordkeeping requirements are found in paragraph (d)
of Rule 17Ad-17, 17 CFR 240.17Ad-17(d).
---------------------------------------------------------------------------

IV. Economic Analysis

A. Introduction

    Exchange Act Section 23(a)(2) requires the Commission, when
adopting rules under the Exchange Act, to consider the impact that any
new rule would have on competition, and prohibits the Commission from
adopting any rule that would impose a burden on competition that is not
necessary or appropriate in furtherance of the purposes of the Exchange
Act. Furthermore, Exchange Act Section 3(f) requires the Commission,
when engaging in rulemaking under the Exchange Act where it is required
to consider or determine whether an action is necessary or appropriate
in the public interest, to also consider, in addition to the protection
of investors, whether the action will promote efficiency, competition,
and capital formation.
    As described above, the Commission is adopting amendments to Rule
17Ad-17 under congressional directive. As originally adopted, Rule
17Ad-17 requires transfer agents to conduct database searches for lost
securityholders. Such loss of contact can be harmful to securityholders
because they no longer receive corporate communications or interest and
dividend payments; in certain cases, securities, cash, and other
property may be placed at risk of being deemed abandoned.
    As discussed above in detail, Section 929W of the Dodd-Frank Act
amended Section 17A of the Exchange Act to extend to brokers and
dealers the requirement of Rule 17Ad-17 to search for ``lost
securityholders.'' Separately, the statute requires ``paying agents''
to provide written notification to each unresponsive payee that the
securityholder has been sent a check that has not been negotiated, and
defines ``paying agent'' to include, ``any issuer, transfer agent,
broker, dealer, investment adviser, indenture trustee, custodian, or
any other person that accepts payments from the issuer of a security
and distributes the payments to the holders of the security.'' The
Commission is adopting amendments to Rule 17Ad-17 to address these
statutory requirements and to require brokers, dealers, and paying
agents subject to the amended rule to make and keep records to
demonstrate compliance with the amended rule, including written
procedures that describe their methodology for complying.
    While the Commission is adopting amendments to Rule 17Ad-17
specifically to implement the statutory mandate, the Commission
recognizes that there may be costs and benefits resulting from the
statute and amendments to Rule 17Ad-17. Extending the requirements of
Rule 17Ad-17 to brokers and dealers represents a new regulatory
obligation for brokers and dealers, and these entities will face
associated costs of complying with the new obligations. Furthermore,
paying agents--including transfer agents, brokers, and dealers--will
incur costs associated with the new requirements of Rule 17Ad-17 to
provide certain notifications to unresponsive payees. The definition of
``paying agent'' is sufficiently broad that these costs will also be
incurred by entities that do not register with--and have not
historically been regulated by--the Commission. At the same time, lost
securityholders and unresponsive payees may benefit by receiving

securities, cash, or other property as a result of the searches and
notifications required by the statute and the resulting amendments to
Rule 17Ad-17.
    These costs and benefits are discussed below. Additionally, the
Commission has considered alternative ways of implementing the statute
suggested by commenters, including narrowing the scope of ``brokers and
dealers'' and shortening the definition of ``paying agent.'' We discuss
aspects of these alternative proposals below as well.

B. Economic Baseline

    Originally adopted in 1997, Rule 17Ad-17 requires recordkeeping
transfer agents to conduct database searches for lost securityholders.
At the time, the Commission staff estimated that 1.34% of total
accounts held by such transfer agents were lost, representing around
$450 million in lost assets.\124\ An informal survey by the Commission
staff in 2000 of seven large transfer agents (representing about 75% of
shareholder accounts), found that 2.23% of total accounts were lost
securityholder accounts.\125\ Under state escheatment laws, an account
that becomes ``lost'' may result in the assets in the account being
deemed abandoned. In the same 2000 survey, the Commission estimated
that 0.87% of shareholder accounts, representing an average of $243 per
account and over $93 million in total, were remitted to the states as
unclaimed property.
---------------------------------------------------------------------------

    \124\ Testimony of Larry E. Bergmann, Senior Associate Director,
Division of Market Regulation, U.S. Securities & Exchange
Commission, before the House Subcommittee on Finance and Hazardous
Materials, Committee on Commerce, available at http://www.sec.gov/news/testimony/ts162000.htm (``Bergmann Testimony'').
    \125\ Id.
---------------------------------------------------------------------------

    As required by the Dodd-Frank Act, the Commission is extending the
obligation under Rule 17Ad-17 to search for lost securityholders to
brokers and dealers. While brokers and dealers house and manage certain
securityholder accounts, there are good economic reasons to believe the
likelihood of accounts becoming lost is lower for brokers and dealers
than for transfer agents. Brokers and dealers rely on their customers
and account holders as a source of revenue, so have an economic
incentive to maintain up-to-date records. Additionally, because the
customers' and account holders' assets are held by brokers and dealers,
and because most of their contact in the ordinary course of business is
with the broker or dealer (not a transfer agent), customers have a
stronger incentive to keep their account information updated with the
brokers and dealers than with transfer agents, so as to not lose
contact with their assets. Indeed, though recent data are scarce
because the Commission has not to date formally tracked the number of
lost securityholder accounts at brokers and dealers, there are studies
that support this hypothesis to some extent.
    In a 2001 survey of transfer agents and broker-dealers by the
Government Accountability Office (``GAO'') (then called the General
Accounting Office), the GAO found that, similar to Commission surveys,
approximately 2% of accounts at transfer agents and brokers-dealers
were classified as lost. While the GAO concluded that few differences
may exist between transfer agents and broker-dealers in the ratio of
lost securityholder accounts to total accounts, they did find that 95%
of brokers-dealers reported less than 1% of accounts as lost, while for
transfer agents, 75% reported less than 1% of accounts as lost.
Similarly, a less formal 2000 survey of 17 brokers-dealers by SIFMA
(then called the Securities Industry Association) found that lost
securityholders accounted for 0.79% of total accounts held at brokers-
dealers.\126\
---------------------------------------------------------------------------

    \126\ ``Lost Security Holders: SEC Should Use Data to Evaluate
Its 1997 Rule,'' GAO Report GAO-01-978, September 2001, available at
http://www.gao.gov/assets/240/232703.pdf (``GAO Report'').
---------------------------------------------------------------------------

    Nevertheless, while the overall incidence of lost securityholder
accounts relative to total securityholder accounts held may be lower at
brokers and dealers than transfer agents, the absolute magnitude, in
terms of both number of lost accounts and dollar amount of assets at
risk of being abandoned, may still be economically meaningful. Transfer
agents serve as an intermediary between issuers and owners of
securities, passing along dividends, interest payments, and other
corporate communications and distributions to a company's investors.
However, a Commission Briefing Paper from 2007 on proxy voting
mechanics noted that, at the time, approximately 85% of exchange-traded
securities were held in street name, as opposed to investor name.\127\
Because transfer agents typically only see the street name on their
records, the broker or dealer holding the securities on behalf of
investors effectively becomes the intermediary. That is, a transfer
agent's searches for lost securityholders likely will not identify lost
securityholders who hold securities at a broker or dealer in street
name since only the broker's or dealer's internal records will show
such securityholders. Rule 17Ad-17 was originally adopted to minimize
instances where lost property is claimed by the states, by establishing
minimum search requirements for lost securityholders. Because brokers
and dealers now serve as the effective intermediary for a large
majority of securities holdings, they may be in a position to identify
a greater number of lost accounts than transfer agents and find lost
securityholders with a greater amount of securities and other assets
than transfer agents.
---------------------------------------------------------------------------

    \127\ ``Roundtable on Proxy Voting Mechanics,'' Commission
Briefing Paper, 2007, available at http://www.sec.gov/spotlight/proxyprocess/proxyvotingbrief.htm.
---------------------------------------------------------------------------

    In addition to extending the requirement to search for lost
securityholders to brokers and dealers, the amendments to Rule 17Ad-17
also require paying agents to notify unresponsive payees in writing
when they have unnegotiated checks outstanding. The Commission
currently lacks accurate data--including any informal survey or other
incomplete dataset that may be indicative--on the number of
unresponsive payees, as well as whether a securityholder has not
negotiated a check due to, for example, lost or stolen property or
investor inattention. However, based on initial estimates in the
Proposing Release we provided for public comment and adjusted based on
such comment as described in section III above,\128\ the Commission
estimates that approximately 800,000 notifications would be sent per
year.
---------------------------------------------------------------------------

    \128\ See, e.g., Letters from SIFMA and Wells Fargo, supra note
14.
---------------------------------------------------------------------------

C. Benefits and Impact on Efficiency, Competition, and Capital
Formation

    As mentioned in the discussion of the economic baseline, the
general purpose of Rule 17Ad-17 is to reduce the number of
securityholder accounts that become lost, and therefore to minimize the
risk that lost property is claimed by the states under escheatment
laws. This risk can be economically significant--in 2000, the
Commission staff estimated that over $93 million in assets, or an
average of $243 per account, were remitted to the states as unclaimed
property.\129\ Extending the rule to brokers and dealers provides
another mechanism for minimizing such remittances. A large majority of
securities are held in street name rather than investor name--up to 85%
of securities, by one Commission estimate--and because transfer agents
record only the street name in such cases, brokers and dealers
effectively serve as the intermediary between issuers and investors for
these holdings

and are in a better position than transfer agents in those cases to
identify and find lost securityholders. Therefore, the rule should
reduce the number of lost securityholders, which would benefit the
securityholders ``found'' by restoring to them their lost securities
and other assets that might otherwise be lost to them or escheated.
---------------------------------------------------------------------------

    \129\ See Bergmann Testimony, supra note 127.
---------------------------------------------------------------------------

    The Commission recognizes that brokers and dealers already have an
economic incentive to search for lost securityholders, since they rely
on securityholders for revenue. Therefore, it is possible that the
benefits of the rule, in terms of a reduction in the number of lost
securityholders, will be relatively modest. However, the Commission
believes that establishing minimum search requirements will facilitate
the realization of such incentives for identifying and finding lost
securityholders, as was apparently intended by Congress.
    In the case of unresponsive payees, the Commission believes that,
due to instances of lost or stolen property, there may exist a subset
of investors who are unaware that an unnegotiated check has gone
missing. The rule should benefit these investors by invoking the
services of paying agents to reduce the number of unnegotiated checks.
While these benefits are difficult to quantify, the Commission
estimates that paying agents would send approximately 800,000
notifications per year; accordingly, if even a relatively small
percentage of notifications result in checks that would not otherwise
have been negotiated being negotiated, there may be a significant
aggregate monetary benefit to investors.
    The Commission also expects the amendments to Rule 17Ad-17 to
modestly improve the efficient allocation and use of resources to the
extent that the new rules reduce the number of lost securityholders and
unresponsive payees. Fewer lost securityholders and unresponsive payees
should reduce the amount of property that is effectively idle and not
being used deliberately for an economic purpose because the
securityholder is unaware of the existence of the property, as well as
reduce the costs securityholders face when attempting to track down and
claim lost assets. Furthermore, by identifying lost securityholders and
finding lost and idle property, there may be beneficial trades that
occur as found accountholders rebalance their portfolios, to the extent
that it is optimal to do so. This result should in turn lead to
enhanced liquidity and improved price efficiency as assets become
available for trade.
    The Commission also expects that identification of lost
accountholders may lead to better corporate governance, either through
improved proxy voting rates or through trades that place the securities
in the hands of more active investors. Both channels could result in
enhanced managerial monitoring and corporate governance, which in turn
would promote capital formation as firms make investment choices that
are expected to be more closely aligned with the interests of
investors.
    Finally, the Commission expects that the amendments will have a
marginal, if any, impact on competition. Fundamentally, the regulatory
problem that Congress addressed in directing the amendment of Rule
17Ad-17 is about efficiency losses associated with lost property that
is ultimately claimed by the state, and not about uncompetitive capital
markets. We generally expect the benefits of the rule to be realized in
terms of the efficient allocation of resources of securityholders and
corresponding effects on capital formation through improved monitoring
and governance, and not improved competition.

D. Costs and Impact on Efficiency, Competition, and Capital Formation

    The amendments to Rule 17Ad-17 create new regulatory obligations
for brokers, dealers, and paying agents (which include transfer agents,
brokers, dealers, and other entities). Brokers and dealers must conduct
searches for lost securityholders, while paying agents must provide
notifications to an unresponsive payee that he or she is the holder of
an unnegotiated check. Furthermore, because the definition of ``paying
agent'' captures certain entities that distribute cash flows from
issuers to investors, the amendments create obligations under the
Exchange Act for entities that have not historically been regulated by
the Commission and for issuers that have had to file only disclosures.
To the extent that brokers and dealers and paying agents do not already
have systems in place to perform these functions and make and keep the
records required to demonstrate compliance (including the written
procedures to describe their methodology for complying), these entities
will incur costs for any necessary modifications to information
gathering, management, recordkeeping, and reporting systems or
procedures.
    As already discussed, brokers and dealers have an economic
incentive to search for lost accounts. While the new rule imposes costs
on brokers and dealers, they may already be shouldering some of these
costs voluntarily, minimizing the incremental costs of the rule.
Nevertheless, in their 2001 study cited above, the GAO found that
approximately 40% of transfer agents and brokers and dealers spent less
than $10 per lost account to search for lost securityholders, though
larger firms were likely to spend more, and about 10% of firms spent
greater than $40.\130\ The Commission believes this finding provides a
reasonable range of cost estimates to brokers and dealers for their
obligation to search for lost securityholders since there appears to be
no technology, market, or other development over the last decade that
would have materially increased the per-securityholder cost.
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    \130\ See GAO Report, supra note 129. Even though Rule 17Ad-17
covered only transfer agents at the time of the 2001 GAO report, the
report surveyed transfer agents, brokers, and dealers in order to
ascertain their activities in dealing with lost securityholders.
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    The costs incurred by paying agents in fulfilling their obligations
to notify unresponsive payees are less certain, and the Commission
currently lacks accurate data--including any informal survey or other
incomplete dataset that may be indicative--on the number of
unresponsive payees. Since unresponsive payees are not lost but merely
unresponsive, paying agents do not incur search costs; variable costs
should be limited to identifying and recording when a check has gone
unnegotiated, and providing the required written notification. However,
certain paying agents may not have the same existing economic
incentives to identify and notify unresponsive payees as brokers and
dealers already have to search for lost securityholders. Therefore,
unlike brokers and dealers that conduct such searches voluntarily being
required to do so under the amendments to Rule 17Ad-17, certain paying
agents may temporarily face higher fixed costs to set up the systems
and procedures to perform their new regulatory obligations.
Furthermore, if fixed costs meaningfully outweigh variable costs, there
could be competitive burdens placed on smaller entities.
    In addition to these search and notification costs, brokers,
dealers, and paying agents will incur costs in making and retaining the
records required under the amendments to Rule 17Ad-17, including the
requirement to maintain written procedures describing their methodology
for complying with such amendments. These costs may be moderated for
regulated entities like brokers and dealers, who must already maintain
extensive sets of records regarding securityholders, including

their contacts with such persons. However, the Commission recognizes
that these recordkeeping costs may be higher for paying agents who have
not been previously regulated by the Commission in this regard,
including issuers and certain custodians.

E. Alternatives Considered

    The Commission requested comment on the costs and benefits of the
amendments to Rule 17Ad-17 in the Proposing Release, and has considered
the comments as well as alternative ways to implement the statute where
possible. Several commenters offered alternative interpretations of the
phase ``brokers and dealers,'' suggesting that the statute be read in
such a way that the rule does not apply to all brokers and dealers, as
a means to mitigate some of the burden of the amendments.\131\
Furthermore, one commenter suggested the Commission could use exemptive
authority under Section 36 of the Exchange Act to narrow the scope of
the phrase ``brokers and dealers.'' \132\ While the Commission
appreciates these comments, as explained above, we believe that the
Dodd-Frank Act constrains their implementation, particularly in light
of the relatively recent adoption of the statute by Congress, and that
applying the rule to all brokers and dealers is the appropriate
approach at this time, even though the costs of compliance may fall
primarily on those brokers and dealers that carry customers' accounts
(i.e., carrying firms). As described above, however, the Commission is
not imposing any requirements as to the means by which brokers and
dealers comply with their obligations under Rule 17Ad-17, and brokers
and dealers may of course negotiate among themselves the most efficient
allocation of the costs associated with the rule.
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    \131\ Letters from Mr. Barnard, Annuity Committee, and SIFMA,
supra note 14.
    \132\ Letter from ABA, supra note 14.
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    Similarly, several commenters suggested that the Commission revise
or shorten the definition of ``paying agent,'' since the definition
captures entities that do not register with the Commission and have not
historically fallen under the Commission's regulatory purview.\133\ As
with the interpretations of ``brokers and dealers,'' the Commission at
this time believes that following the statutory language is the
appropriate approach. Moreover, to apply rules to only a subset of
entities that were specified by Congress as ``paying agents'' may
create unnecessary competitive differences among paying agents, while
not fully realizing the benefits of notifying certain classes of
unresponsive payees of unnegotiated checks.
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    \133\ Letters from ABA, Annuity Committee, and American Bankers,
supra note 14.
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    Finally, as discussed above, it is not clearly stated in the
statute whether the paying agent must provide: (1) A single written
notification to each unresponsive payee who has been sent a check that
has not yet been negotiated; or (2) a single written notification to
the unresponsive payee for each check that has been sent but has not
yet been negotiated. While the Commission considered requiring a
written notification for each check that is not yet negotiated, the
Commission has determined that the Dodd-Frank Act permits it to allow
paying agents to decide how best to comply with the statutory mandate.
Under the final rules, a paying agent has the option to send a single
notification for multiple unnegotiated checks, provided that the single
notification sufficiently identifies each unnegotiated check and is
sent no later than seven months after the initial sending of the oldest
unnegotiated check in the notification. The Commission believes that
the regulatory benefits associated with the statutory mandate can be
achieved with a single notification for multiple checks; requiring a
separate written notification for each check would impose additional
regulatory costs on paying agents without realizing corresponding
regulatory benefits.

V. Final Regulatory Flexibility Act Analysis (``FRFA'')

    A FRFA has been prepared in accordance with Section 4(a) of the
Regulatory Flexibility Act.\134\ The Commission prepared the Initial
Regulatory Flexibility Act Analysis in conjunction with the Proposing
Release on March 18, 2011.\135\
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    \134\ 5 U.S.C. 603(a). We note that neither the amendments to
Rule 17Ad-17 nor the adoption of technical Rule 15b1-6 requires
analysis under the Regulatory Flexibility Act.
    \135\ Supra note 13, at Section VI.
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A. Need for and Objectives of the Rule

    This rulemaking action was expressly directed Section 929W of the
Dodd-Frank Act, which added paragraph (g) to Section 17A of the
Exchange Act. The objectives of this rulemaking, as discussed above in
Sections I and II, are to help reduce the number of lost
securityholders and unresponsive payees, and to further the
Commission's mission of protecting investors. The legal basis for the
rulemaking is set forth in Section 17A(g) of the Exchange Act.\136\
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    \136\ 15 U.S.C. 78q-1(g).
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B. Significant Issues Raised by Public Comment

    Comments from the public suggested that certain cost estimates
included in the Proposing Release were too low.\137\ Accordingly, as
discussed in more detail above, especially in Section IV, we have
revised the rule's cost estimates.
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    \137\ Letters from ABA, SIFMA, and Wells Fargo, supra note 14.
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C. Small Entities Subject to the Rule

1. Brokers and Dealers
    The amendments to Rule 17Ad-17 will apply to all brokers and
dealers. However, as described above, we anticipate that the amendments
will as a practical matter apply mainly to brokers and dealers that
carry securities for customer accounts (i.e., carrying firms), which
tend to be larger broker and dealer firms. There are 301 brokers and
dealers registered with the Commission that we believe act as carrying
firms, none of which qualifies as a small entity.\138\ According to
Exchange Act Rule 0-10(c),\139\ a broker or dealer is a small entity if
it: (1) Had total capital (net worth plus subordinated liabilities) of
less than $500,000 on the date in the prior fiscal year as of which its
audited financial statements were prepared pursuant to Section 240.17a-
5(d) or, if not required to file such statements, a broker or dealer
that had total capital (net worth plus subordinated liabilities) of
less than $500,000 on the last business day of the preceding fiscal
year (or in the time that it has been in business, if shorter); and (2)
is not affiliated with any person (other than a natural person) that is
not a small business or small organization as defined in this
section.\140\ Of the 4,705 brokers and dealers registered with the
Commission, the Commission estimates that approximately 812 are
classified as ``small'' entities for purposes of the Regulatory
Flexibility Act. There are 301 brokers and dealers registered with the
Commission that we believe act as carrying firms, none of which
qualifies as a small entity. Accordingly, we do not expect that the
amendments to Rule 17Ad-17 will have any significant effect on small
brokers or dealers.\141\
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    \138\ See supra note 100.
    \139\ 17 CFR 240.0-10(c).
    \140\ Paragraph (i) of Rule 0-10, 17 CFR 240.0-10, discusses the
meaning of ``affiliated person'' as referenced in Paragraph (c) of
Rule 0-10.
    \141\ 17 CFR 240.17Ad-17.

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2. Paying Agents
    Certain amendments to Rule 17Ad-17 will apply to all paying agents.
Section 17A(g)(D)(ii) defines the term ``paying agent'' to include
``any issuer, transfer agent, broker, dealer, investment adviser,
indenture trustee, custodian, or any other person that accepts payment
from the issuer of a security and distributes the payments to the
holder of the security.'' With respect to data for the entities who
could potentially qualify as ``paying agents'' under this definition:
(1) Of the 10,379 issuers that file reports with the Commission, 1,207
qualify as small businesses; \142\ (2) of the 536 transfer agents
registered with the Commission or with the Federal banking agencies,
135 qualify as small businesses; \143\ (3) of the 4,075 brokers and
dealers registered with the Commission, 812 qualify as small
businesses, as discussed above; \144\ (4) of the 11,797 investment
advisers registered with the Commission, 718 qualify as small
businesses; \145\ (5) of the 264 indenture trustees, four qualify as
small businesses; \146\ and (6) of the 896 custodians, 11 qualify as
small businesses.\147\ The Commission has no supportable basis to
estimate the number of small entities with respect to other persons
that potentially may be included in the definition under the ``any
other person'' provision. As noted in Section IV, while approximately
28,577 entities have been identified as potential paying agents, the
Commission estimates that only approximately 3,035 such entities will
actually qualify as paying agents under Rule 17Ad-17.
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    \142\ Exchange Act Rule 0-10(a), 17 CFR 240.0-10(a).
    \143\ Exchange Act Rule 0-10(h). 17 CFR 240.0-10(h).
    \144\ Exchange Act Rule 0-10(c). 17 CFR 240.0-10(c).
    \145\ Investment Advisers Act Rule 0-7(a). 17 CFR 275.0-7(a).
    \146\ Trust Indenture Act Rule 0-7, 17 CFR 260.0-7.
    \147\ Small Business Administration Act Rule 201, 13 CFR
121.201.
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    We believe that a high proportion of paying agent services will be
provided by: (1) brokers and dealers that carry customer securities
(which, as discussed above in Section V.C.1, would not be small
entities) and (2) transfer agents (including bank transfer agents) that
provide such services. These firms that typically serve as
intermediaries between issuers and securityholders are not typically
small businesses as defined in Exchange Act Rule 0-10(c).\148\
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    \148\ 17 CFR 240.0-10(c).
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D. Reporting, Recordkeeping, and Other Compliance Requirements

    New paragraph (d) of Rule 17Ad-17 requires brokers, dealers, and
paying agents maintain records to demonstrate compliance with the
amendments to Rule 17Ad-17, including written procedures that describe
their methodology for complying with the amendments. Such records are
required to be maintained for not less than three years, the first year
in an easily accessible place in accordance with Rule 17Ad-17(i).\149\
Records are subject to examination by the appropriate regulatory agency
as defined by Section 3(a)(34)(B) of the Exchange Act.\150\
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    \149\ 17 CFR 240.240.17Ad-17(i).
    \150\ 15 U.S.C. 78c(a)(34)(B).
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E. Agency Action To Minimize Effect on Small Entities

    As required by Section 604 of the Regulatory Flexibility Act,\151\
with respect to small entities, the Commission considered whether
viable alternatives to the rulemaking exist that could accomplish the
stated objectives of Section 17A(g) of the Exchange Act and whether
they would minimize any significant economic impact of the rules on
small entities. Specifically, the Commission considered the following
alternatives: (1) The establishment of differing compliance
requirements that take into account the resources available to small
entities; (2) the clarification, consolidation, or simplification of
compliance and reporting requirements under the new rules insofar as
they affect small entities; (3) the use of performance rather than
design standards; and (4) an exemption from coverage of the rule, or
any part thereof, for small entities.
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    \151\ 5 U.S.C. 604.
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    Section 929W of the Dodd-Frank Act, which added Section 17A(g) to
the Exchange Act, expressly requires the amendments to Rule 17Ad-17. We
believe that small entities should be included under the amendments
because, as discussed above, the statutory language does not suggest
that Congress intended to exclude or exempt any class of brokers,
dealers, or paying agents from compliance. Rather, furthering the
apparent goal of Congress--reuniting securityholders and payees with
their property--requires the searches and notifications contemplated by