month.\174\ Non-routine items must receive ``diligent and continuous
attention'' and must be ``turned around as soon as possible.'' \175\
Routine items that are not turned around within three business days
nevertheless must be ``turned around promptly.'' \176\ Registered
transfer agents acting as a registrar must ``process'' at least 90% of
all items received during any given month no later than noon of the
next business day for any item received after noon and no later than
the opening of business on the next business day for those items
received at or before noon.\177\ If a transfer agent fails to meet the
performance standards for turnaround set forth in Rule 17Ad-2 with
respect to any month, it must notify the Commission and the transfer
agent's ARA if it is not the Commission within 10 business days of the
end of the month, provide certain turnaround data regarding specific
numbers and percentages of items, explain the reasons for the failure,
identify what steps have been taken to prevent future failures, and
provide certain data regarding routine items that have not been turned
around and have been in the transfer agent's possession for ``more than
four business days.'' \178\ Similar notification requirements apply
where a transfer agent acting as a registrar fails to meet the
processing performance standards.\179\
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    \172\ As discussed in more detail infra in Section IV.C.1, the
NYSE imposes a 48 hour turnaround requirement.
    \173\ Routine items are defined by Rule 17Ad-1(i), 17 CFR
240.17Ad-1(i). They are generally defined in the negative such that
most items are considered routine so long as they do not require the
requisition of a new certificate that the transfer agent does not
have on hand, are not subject to a stop order, adverse claim, or
other restriction on transfer, do not require certain additional
documentation or review to complete the transfer, do not involve a
transfer in connection with certain types of corporate actions, do
not include a security of an issue which within the previous 15
business days was offered to the public pursuant to a Securities Act
registration statement in an offering of a non-continuing nature,
and do not include a warrant, right or convertible security either
presented for transfer within five business days before rights
expire or change or presented for exercise or conversion.
    \174\ Exchange Act Rule 17Ad-2(a), 17 CFR 240.17Ad-2(a). We note
that with automation, these standards are substantially easier to
meet than when the rule was adopted in 1977.
    \175\ Exchange Act Rule 17Ad-2(e), 17 CFR 240.17Ad-2(e).
    \176\ Id.
    \177\ Exchange Act Rule 17Ad-2(e), 17 CFR 240.17Ad-2(b).
    \178\ Exchange Act Rule 17Ad-2(c), 17 CFR 240.17Ad-2(c).
    \179\ Exchange Act Rule 17Ad-2(d), 17 CFR 240.17Ad-2(d).
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    Rule 17Ad-3 provides limitations on the expansion of transfer agent
activities if a transfer agent is unable to meet the minimum
performance standards established by Rule 17Ad-2. Any transfer agent
that is required pursuant to Rule 17Ad-2 to provide notice for failure
to meet the performance standards for three consecutive months is
prohibited from taking on new issues or providing new services for
existing

issues.\180\ Further, if a transfer agent fails to turnaround or
process at least 75% of all routine items, it must notify the chief
executive officer of each issuer for which the transfer agent
acts.\181\ Thus, Rules 17Ad-2 and 17Ad-3, taken together, provide an
early warning system to alert issuers, the Commission and other ARAs of
untimely performance and potential problems.
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    \180\ Exchange Act Rule 17Ad-3(a), 17 CFR 240.17Ad-3(a). Such
limitations on the business of the transfer agent continue until
there has been a period of three successive months in which no
notices have been required.
    \181\ Exchange Act Rule 17Ad-3(b), 17 CFR 240.17Ad-3(b).
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    Rule 17Ad-4 provides certain exemptions from the turnaround,
processing, and recordkeeping rules.\182\ Rule 17Ad-4(a) creates an
exemption from Rules 17Ad-2, 17Ad-3, and 17Ad-6(a)(1)-(7) for the
processing of interests in limited partnerships, DRIPs, and redeemable
securities issued by investment companies registered under Section 8 of
the Investment Company Act of 1940 (``Investment Company Act''), which
are also known as open-end funds.\183\ In 1977, the rationale for
providing the exemption for interests in limited partnerships was ``the
low volume of transfers of such interests,'' \184\ while the rationale
for providing the exemption for DRIPs was the Commission's view at the
time that transfer agents' processing for DRIPs ``require[s] procedures
significantly different from the procedures required to transfer
ownership of stocks and bonds.'' \185\
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    \182\ Exchange Act Rule 17Ad-4, 17 CFR 240.17Ad-4.
    \183\ Investment Company Act Section 8, 15 U.S.C. 80a-8. See
generally, Section VII.C for discussion of transfer agents for
investment companies and the handling of redeemable securities
issued by investment companies.
    \184\ Regulation of Transfer Agents, Exchange Act Release No.
13293 (Feb. 24, 1977) (``Rule 17Ad-1 through 17Ad-7 Re-Proposing
Release'') (``From the information provided in SEC Form TA-1, 17 CFR
249b.100, the low volume of transfers of such [limited partnership]
interests suggests that they may appropriately be exempted from
revised [Rules 17Ad-2, 17Ad-3, and 17Ad-6(a)(1) through (a)(7)].'').
    \185\ Rule 17Ad-1 through 17Ad-7 Adopting Release, supra note 45
(``Lastly, the exemptions of paragraph 17Ad-4(a) have been expanded
to include the transfers and withdrawals of shares from dividend
reinvestment plans which . . . require procedures significantly
different from the procedures required to transfer ownership of
stocks and bonds.'')
---------------------------------------------------------------------------

    The Commission expressed the same rationale with respect to
redeemable securities of registered investment companies, stating that
transactions in these securities were ``significantly different from
the transfer of ownership of stocks and bonds on issuer's records.''
\186\ In addition, the Commission noted that such activity ``is subject
to Section 22(e) of the Investment Company Act of 1940, 15 U.S.C. 80a-
22(e),'' \187\ and that ``[t]he amount of certificated fund shares is
relatively small, and the amount of transfer agent activity in
connection with transferring ownership of certificated shares
represents a very small part of a transfer agent's activity with regard
to an open-end investment company.'' \188\ For these reasons, the
Commission believed at the time that ``it would be desirable to study
further the need for, and the nature of, minimum performance standards
for the transfer of securities effected by open-end investment
companies registered under Section 8 of the Investment Company Act, 15
U.S.C. 80a-8.'' \189\
---------------------------------------------------------------------------

    \186\ Rule 17Ad-1 through 17Ad-7 Adopting Release, supra note
145, at n.13. As originally proposed, the exemption would have been
for ``securities of open-end investment companies,'' rather than
``redeemable securities of investment companies.'' See Rule 17Ad-1
through 17Ad-7 Re-Proposing Release, supra note 184. By adding the
word ``redeemable,'' redeemable securities of registered unit
investment trusts (``UIT'') were included within the exemption.
However, because closed-end investment companies do not issue
redeemable securities, transfer agents servicing closed-end fund
securities are not within the exemption. Rule 17Ad-1 through 17Ad-7
Adopting Release, supra note 145, at n.14 (``The turnaround rules do
apply to registered transfer agents performing transfer agent
functions for securities issued by closed-end investment
companies.'') (emphasis added).
    \187\ Rule 17Ad-1 through 17Ad-7 Adopting Release, supra note
145, at 32408.
    \188\ Rule 17Ad-1 through 17Ad-7 Adopting Release, supra note
145, at n.13.
    \189\ Rule 17Ad-1 through 17Ad-7 Re-Proposing Release, supra
note 184.
---------------------------------------------------------------------------

    Rule 17Ad-4(b) provides a similar exemption for certain small
transfer agents by exempting a registered transfer agent from the
turnaround, processing, recordkeeping, and other provisions of Rules
17Ad-2(a), (b), (c), (d) and (h), 17Ad-3, and 17Ad-6(a)(2)-(7) and
(11), provided the transfer agent has received fewer than 500 items for
transfer and fewer than 500 items for processing within a consecutive
six month period, and provided that the transfer agent has filed proper
notice of its exempt status with its ARA or has prepared a document
certifying that the transfer agent qualifies as exempt (with respect to
those ARAs where filing is not required).\190\ The rationale behind
this exemption was that, because the number of transfers performed by
these smaller transfer agents was relatively small and involved issues
which are not traded actively, it was not necessary or appropriate at
that time to require those smaller transfer agents to comply with the
minimum performance standards, recordkeeping provisions, and other
requirements in those rules.\191\
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    \190\ The filing of notices of exempt status for these small
transfer agents is required where the ARA is the Federal Deposit
Insurance Corporation (``FDIC'') or the Federal Reserve. Where the
ARA is the Commission or the Office of the Comptroller of the
Currency, the exempt transfer agent is not required to file a notice
but must prepare a document certifying that the transfer agent
qualifies as exempt and retain it in its records. See Exchange Act
Rule 17Ad-4(b)(3), 17 CFR 240.17Ad-4(b)(3).
    \191\ Rule 17Ad-1 through 17Ad-7 Adopting Release, supra note
145, at 32408.
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    Rule 17Ad-5 generally requires a registered transfer agent to
respond within prescribed timeframes to certain types of written
inquiries.\192\ Rule 17Ad-5(a) requires a registered transfer agent to
respond within five business days following the receipt of an inquiry
from any ``person'' concerning the status of an item presented for
transfer by such person or their agent during the preceding six months,
provided the inquirer provides specific information concerning the
item.\193\ Rule 17Ad-5(b) requires a registered transfer agent to
respond to any ``broker-dealer'' inquiry within five business days
confirming or denying whether it has possession of a security presented
for transfer and, if it has possession, acknowledging the transfer
instructions or revalidating the window ticket,\194\ provided the
broker-dealer provides certain identifying information.\195\ Rule 17Ad-
5(c) requires a registered transfer agent to respond within 10 business
days confirming or denying possession of a security where any person or
their agent has requested that the transfer agent confirm possession as
of a given date of a certificate presented by such person during the
preceding 30 days \196\ and provides information similar to that which
is required under Rules 17Ad-5(a) and (b).\197\ If required by the
transfer agent, the inquirer must also provide assurance of
payment.\198\ Rule 17Ad-5(d) requires a registered transfer agent to
respond within 20 business

days where any person requests a transcript of such person's account
with respect to a particular securities issue as of a certain date not
more than six months prior to the request.\199\ If required by the
transfer agent, the inquirer must provide the transfer agent assurance
of payment of a reasonable fee for this service.\200\
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    \192\ Exchange Act Rule 17Ad-5, 17 CFR 240.17Ad-5. The response
must generally be in writing, however, Rule 17Ad-5(f)(1) permits a
telephone response if (i) the telephone response resolves the
inquiry and (ii) the inquirer does not request a written response.
Exchange Act Rule 17Ad-5(f)(1), 17 CFR 240.17Ad-5(f)(1).
    \193\ Exchange Act Rule 17Ad-5(a), 17 CFR 240.17Ad-5(a)
(requiring inquirer to provide: (i) The issue, (ii) the number of
shares or units (or principal amount of debt securities), (iii) the
approximate date of presentation, and (iv) the name in which the
item is registered).
    \194\ Exchange Act Rule 17Ad-5(b), 17 CFR 240.17Ad-5(b).
    \195\ Id. See also supra note 193 (concerning information to be
provided by inquirers).
    \196\ Exchange Act Rule 17Ad-5(c), 17 CFR 240.17Ad-5(c).
    \197\ Id. See also supra note 193 (concerning information to be
provided by inquirers).
    \198\ Id.
    \199\ Exchange Act Rule 17Ad-5(d), 17 CFR 240.17Ad-5(d).
    \200\ Id.
---------------------------------------------------------------------------

    Rules 17Ad-6 and 17Ad-7, taken together, address some of the basic
aspects of the records that transfer agents must maintain and for how
long.\201\ Rule 17Ad-6 generally details what records every registered
transfer agent shall make and keep. Rule 17Ad-6(a)(1) requires every
registered transfer to make and keep receipts, tickets, logs,
schedules, journals, and other records showing the number of routine
and non-routine items received and made available each business
day.\202\ Rules 17Ad-6(a)(2) through (4) require maintenance of records
that generally relate to the monitoring of performance standards for
turnaround and for processing under Rule 17Ad-2 for each month and
notices required to be filed under Rule 17Ad-2 \203\ and any written
inquiries or requests, including those inquiries to transfer agents
where the inquiries were not subject to Rule 17Ad-5 or inquiries which
were answered orally or where no response was made. Rule 17Ad-6(a)(8)
requires maintenance of any contracts and certain related documentation
showing the appointment or termination of the registered transfer agent
to serve in any capacity on behalf of an issuer.\204\ Rule 17Ad-6(a)(9)
requires records of: (i) Currently active stop orders; \205\ (ii)
adverse claims; \206\ and (iii) restrictions on transfer.\207\
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    \201\ Exchange Act Rule 17Ad-6, 17 CFR 240.17Ad-6.
    \202\ Exchange Act Rule 17Ad-6(a)(1), 17 CFR 240.17Ad-6(a)(1).
    \203\ Exchange Act Rule 17Ad-6(a)(2)-(4), 17 CFR 240.17Ad-
6(a)(2)-(4).
    \204\ Exchange Act Rule 17Ad-6(a)(8), 17 CFR 240.17Ad-6(a)(8).
    \205\ For discussion of stop orders as a general matter, see
supra notes 25 and 26.
    \206\ For discussion of an adverse claim in connection with
protected purchaser status under the UCC, see supra note 14 and
accompanying text. Regarding the existence of an adverse claim as a
factor resulting in classification of an item as non-routine under
the Commission's transfer agent rules, see supra note 173, Exchange
Act Rule 17Ad-1(i), 17 CFR 240.17Ad-1(i).
    \207\ For discussion of securities subject to restrictions on
transfer and of restrictive legends, see infra Section VI.D.
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    Rule 17Ad-7 specifies the particular lengths of time for which the
various records described in Rule 17Ad-6 shall be maintained.\208\
While the records listed in Paragraph (a)(1) of this rule were
generally, at the time of its adoption in 1977, paper records such as
receipts, tickets, schedules, they now are likely to be electronic
records. Rule 17Ad-7(f), was updated in 2001 and 2003 to authorize the
use of electronic recordkeeping, electronic storage media, and
micrographic storage media, such as microfilm records.\209\ Paragraph
(g) of Rule 17Ad-7 regulates transfer agent records maintained by an
outside service bureau, other recordkeeping service or the issuer.''
\210\ Paragraph (h) states that when a registered transfer agent ceases
to perform transfer agent functions, its responsibilities under this
provision ``shall end upon the delivery of such records to the
successor transfer agent,'' a provision that was originally included to
clarify when a transfer agent is relieved of such recordkeeping
responsibilities.\211\
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    \208\ Exchange Act Rule 17Ad-7, 17 CFR 240.17Ad-7.
    \209\ See Recordkeeping Requirements for Transfer Agents,
Exchange Act Release No. 44227 (Apr. 27, 2001), 66 FR 21659 (May 1,
2001); Recordkeeping Requirements for Registered Transfer Agents,
Exchange Act Release No. 48949 (Dec. 18, 2003), 68 FR 75050 (Dec.
29, 2003) (``Recordkeeping Requirements for Transfer Agents'').
    \210\ Exchange Act Rule 17Ad-7(g), 17 CFR 240.17Ad-7(g).
    \211\ Rule 17Ad-1 through 17Ad-7 Adopting Release, supra note
145, at 32411.
---------------------------------------------------------------------------

    Rule 17f-1 \212\ was adopted in 1976 pursuant to Section 17(f)(1)
of the Exchange Act in order to curtail trafficking in lost, stolen,
missing, and counterfeit securities certificates.\213\ It requires
reporting institutions, which are defined as national securities
exchanges, brokers, dealers, registered transfer agents, and others, to
report missing, lost, counterfeit, or stolen securities to the
Commission or its designee. This led to the Commission's implementation
in 1977 of the Lost and Stolen Securities Program and also led to
subsequent Commission releases addressing in detail the structure of
the program.\214\ The program became fully operational on January 2,
1978 and consists mainly of an electronic database for securities
certificates that have been reported lost, stolen, missing, or
counterfeit.\215\ The Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 (``Dodd-Frank Act'') expanded Section 17(f)(1)'s
statutory coverage to add securities certificates that are cancelled to
the categories that must be reported to the Commission or its
designee.\216\
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    \212\ Exchange Act Section 17(f)(1), 15 U.S.C. 78q(f)(1);
Exchange Act Rule 17f-1, 17 CFR 240.17f-1. See also Adoption of
Reporting and Inquiry Requirements with Respect to Missing, Lost,
Stolen and Counterfeit Securities, Exchange Act Release No. 13053
(Dec. 15, 1976), 41 FR 54923 (Dec. 16, 1976) (order adopting Rule
17f-1).
    \213\ See Senate Report on Securities Act Amendments of 1975,
supra note 44 at 103-4; see also Hearings before the Permanent
Subcomm. on Investigations of the S. Comm. on Gov't Operations, 93rd
Cong., 1st Sess. (1973), 2nd Sess. (1974).
    \214\ See, e.g., Implementation of program for reporting and
inquiry with respect to missing, lost counterfeit or stolen
securities, Exchange Act Release No. 13832 (Aug. 5, 1977), 42 FR
41022 (Aug. 12, 1977) (order adopting Release implementing the Lost
and Stolen Securities Program); U.C.C. 8-405 (``Replacement of Lost,
Destroyed, or Wrongfully Taken Security Certificate'').
    \215\ See supra note 25. Lost and Stolen Securities Program
Amendments, Exchange Act Release No. 15867 (May 23, 1979), 44 FR
31500 (May 31, 1979).
    \216\ Pub. L. 111-203, 124 Stat. 1376, Sec.  929D (2010).
---------------------------------------------------------------------------

    Rule 17f-2 was adopted in 1976 and requires the fingerprinting of
certain securities industry personnel.\217\ In accordance with its
governing statute, Section 17(f)(2) of the Exchange Act,\218\ Rule 17f-
2 requires, with certain exemptions, the fingerprinting of all
partners, directors, officers, and employees of brokers, dealers,
registered transfer agents, and registered clearing agencies. The Dodd-
Frank Act expanded Section 17(f)(2)'s statutory coverage to include the
personnel of national securities exchanges, national securities
associations, and registered securities information processors.\219\
---------------------------------------------------------------------------

    \217\ Exchange Act Rule 17f-2, 17 CFR 240.17f-2; Lost and Stolen
Securities Program Amendments, Exchange Act Release No. 12214 (Mar.
16, 1976), 41 FR 13594 (Mar. 31, 1976) (order adopting Rule 17f-2).
    \218\ Exchange Act Rule 17(f)(2), 15 U.S.C. 78q(f)(2).
    \219\ Pub. L. 111-203, 124 Stat. 1376, Sec.  929S.
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3. Recordkeeping and Safeguarding Rules: Rules 17Ad-8 Through 17Ad-13
    The new regulatory regime established by the turnaround rules
provided the Commission with visibility into the transfer agent
industry and a way to review and analyze it. The first six years of
monitoring transfer agent performance under the new regulatory regime
highlighted some of the significant adverse operational and financial
consequences for the securities industry, securities markets, issuer
community, and investing public that could occur when a transfer
agent's operations collapse, when records maintained by a transfer
agent contain significant inaccuracies, or when a transfer agent's
internal accounting controls are inadequate.\220\ The Commission
therefore determined that

additional rulemaking was necessary and appropriate to supplement the
turnaround rules.
---------------------------------------------------------------------------

    \220\ See 17Ad-9 through 13 Proposing Release, supra note 2. In
its release proposing Rules 17Ad-9 to 17Ad-13, the Commission cited
examples of substandard transfer agent performance in the areas of
recordkeeping and safeguarding and noted the significant adverse
operational and financial problems caused by poor transfer agent
performance or operations.
---------------------------------------------------------------------------

    The impetus for Rule 17Ad-8 was the recommendation in the Final
Street Name Study that ``each depository be required to transmit
periodically to each issuer whose securities the depository holds of
record a list of the persons on whose behalf the depository holds the
securities.'' \221\ The rule, which was adopted in 1980, requires every
registered clearing agency to provide promptly to each issuer or
transfer agent acting on its behalf, upon request, a securities
position listing which identifies the participants on whose behalf the
clearing agency holds the issuer's securities in the name of the
clearing agency or its nominee and the respective positions in such
securities as of a specified date.\222\ The clearing agency may charge
issuers who request this service with fees designed to recover its
reasonable costs.\223\
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    \221\ Securities Position Listing Rule, Exchange Act Release No.
16443 (Dec. 20, 1979), 44 FR 76774, 76775 (Dec. 28, 1979)
(``Adopting Release for Rule 17Ad-8''); Final Street Name Study,
supra note 82, at 55.
    \222\ See Exchange Act Rule 17Ad-8, 17 CFR 240.17Ad-8; Adopting
Release for Rule 17Ad-8, supra note 221.
    \223\ Exchange Act Rule 17Ad-8(b), 17 CFR 240.17Ad-8(b).
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    On June 10, 1983, the Commission adopted Rules 17Ad-9 through 17Ad-
13.\224\ These new rules established various requirements and
exemptions designed to ensure that transfer agents maintain appropriate
internal controls, meet adequate levels of service and performance, and
avoid adverse operational and financial problems that could harm
investors, issuers, or other securities industry participants. Most
notably, the new rules established additional minimum standards for
recordkeeping and codified minimum requirements for the safeguarding of
funds and securities.\225\ The Commission believed that these
additional minimum standards were critical to addressing seriously
deficient transfer agent performance.\226\
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    \224\ Exchange Act Rules 17Ad-9-13, 17 CFR 240.17Ad-9-13.
    \225\ See 17Ad-9 through 13 Proposing Release, supra note 2.
    \226\ Id. The Commission was particularly concerned with
reducing the potential for transfer agent failure, which inevitably
imposes substantial potential liabilities and costs on issuers,
securities firms, and securityholders, as well as improving
generally transfer agent performance, thereby reducing the broker-
dealers' costs associated with fails to settle and extended transfer
delays.
---------------------------------------------------------------------------

    Rule 17Ad-9 \227\ defines 12 principal terms with respect to
transfer agents as used especially in Rules 17Ad-10 through 17Ad-13,
consisting of the terms ``certificate detail,'' ``master securityholder
file,'' ``subsidiary file,'' ``control book,'' ``credit,'' ``debit,''
``record difference,'' ``record keeping transfer agent,'' ``co-transfer
agent,'' ``named transfer agent,'' ``service company transfer agent,''
and ``file.'' \228\
---------------------------------------------------------------------------

    \227\ Exchange Act Rule 17Ad-9, 17 CFR 240.17Ad-9.
    \228\ See 17Ad-9 through 13 Proposing Release, supra note 2.
---------------------------------------------------------------------------

    Rule 17Ad-9's certificate detail,\229\ with respect to certificated
securities, includes, at a minimum, all of the following (and with
respect to uncertificated securities, includes only items (ii) through
(viii)): (i) The certificate number, meaning the unique serial number
of each certificate of an issue of securities, as distinct from the
CUSIP number \230\ which is the same number for all certificates of the
same issue; (ii) the number of shares (for equity securities) or
principal dollar amount (for debt securities) designated by the
certificate; (iii) the securityholder's registration, which is the name
of the individual, partnership, or corporation in which a securities
certificate is held and which registration appears on the face of the
certificate; (iv) the address of the registered owner, which also
appears on the face of the certificate; (v) the date the certificate
was issued, which likewise appears on the face of the certificate; (vi)
the ``cancellation date of the securities certificate,'' which, if and
when the certificate is cancelled will appear on the face of a
certificate along with the word ``cancelled'' to evidence that the
certificate no longer has any market value and that it no longer
represents a claim against the issuer; (vii) in the case of redeemable
securities of investment companies (e.g., securities issued by open-end
management companies and other investment companies registered under
Section 8 of the Investment Company Act), an appropriate description of
each debit and credit (i.e., designation indicating purchase,
redemption, or transfer); and (viii) ``[a]ny other identifiable
information about securities and securityholders'' that the transfer
agent reasonably deems essential to its recordkeeping system for the
efficient and effective research of record differences.\231\
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    \229\ For ``certificate detail,'' see also Exchange Act Rule
17f-1(c)(6), 17 CFR 240.17f-1(c)(6).
    \230\ CUSIP stands for Committee on Uniform Security
Identification Procedures. A CUSIP number is assigned to most
financial instruments. See CUSIP Number, SEC, http://www.sec.gov/answers/cusip.htm.
    \231\ Exchange Act Rule 17Ad-9(a), 17 CFR 240.17Ad-9(a).
---------------------------------------------------------------------------

    ``Master securityholder file'' is defined as the official list of
individual securityholder accounts. With respect to uncertificated
securities of investment companies registered under the Investment
Company Act, the master securityholder file may consist of multiple,
but linked, automated files.\232\
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    \232\ Exchange Act Rule 17Ad-9(b), 17 CFR 240.17Ad-9(b). In
other contexts, the master securityholder file may be referred to as
a ``stockholder register,'' ``stockholder list,'' ``shareholder
ledger,'' or some other designation. As used throughout this
release, we refer to it as the master securityholder file. See,
e.g., Del. Code Ann. tit. 8 Sec.  220 (referring to a corporation's
``stock ledger'' as well as its ``list of its stockholders'').
---------------------------------------------------------------------------

    A ``subsidiary file'' is any list of record of accounts,
securityholders, or certificates that evidences debits or credits that
have not been posted to the master securityholder file.\233\
---------------------------------------------------------------------------

    \233\ Exchange Act Rule 17Ad-9(c), 17 CFR 240.17Ad-9(c).
---------------------------------------------------------------------------

    A ``control book'' is the record or other document that shows the
total number of shares (in the case of equity securities) or the
principal dollar amount (in the case of debt securities) authorized and
issued by the issuer.\234\ The control book may be referred to in the
industry as a registrar journal, and is one of the mechanisms transfer
agents use to monitor against overissuance.\235\
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    \234\ Exchange Act Rule 17Ad-9(d), 17 CFR 240.17Ad-9(d).
    \235\ The Commission's transfer agent rules do not provide a
definition of ``overissuance'' or explicitly import a definition
from other authorities that have defined this term. The UCC provides
a definition of this term which has been amended over the years and
currently provides: ``In this section `overissue' means the issue of
securities in excess of the amount the issuer has corporate power to
issue, but an overissue does not occur if appropriate action has
cured the overissue.'' U.C.C. 8-210(a). One way in which an
overissue can occur is when a corporation issues more shares than
are authorized under its charter, such as its articles of
incorporation. Under state law, shares over issued in such a manner
may be deemed void. See, e.g., Del. Gen. Corp. L. Sec. Sec.  161,
242(a)(3). For more information concerning the general concept of
``overissuances'' and types of transactions in which overissuances
can occur, see Guttman, supra note 6, at Sec.  11:7; Rhodes, supra
note 18, at Sec.  22:3.
---------------------------------------------------------------------------

    A ``credit'' is an addition of appropriate certificate detail to
the master securityholder file, and a ``debit'' is a cancellation of
appropriate certificate detail to the master securityholder file.\236\
---------------------------------------------------------------------------

    \236\ Exchange Act Rule 17Ad-9(e), (f), 17 CFR 240.17Ad-9(e),
(f).
---------------------------------------------------------------------------

    A ``record difference'' occurs when either: (i) The total number of
shares or total principal dollar amount of securities in the master
securityholder file does not equal the number of shares or principal
dollar amount in the control book; or (ii) the security transferred or
redeemed contains certificate detail different from the certificate
detail currently on the master

securityholder file, which difference cannot be immediately
resolved.\237\
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    \237\ Exchange Act Rule 17Ad-9(g), 17 CFR 240.17Ad-9(g).
---------------------------------------------------------------------------

    A ``recordkeeping transfer agent'' is the registered transfer agent
that maintains and updates a security's master securityholder
file.\238\ All other transfer agents associated with a given issue of
securities are defined as ``co-transfer agents,'' which are registered
transfer agents that transfer securities but do not maintain and update
the master securityholder file.\239\ A co-transfer agent may include an
outside registrar that keeps only the control book as defined in Rule
17Ad-1(b). A ``named transfer agent'' is the registered transfer agent
that is engaged by an issuer to perform transfer agent functions for an
issue of securities but has engaged a service company to perform some
or all of those functions.\240\ And a ``service company'' is the
registered transfer agent engaged by a named transfer agent to perform
transfer agent functions for that named transfer agent.\241\
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    \238\ Exchange Act Rule 17Ad-9(h), 17 CFR 240.17Ad-9(h).
    \239\ Exchange Act Rule 17Ad-9(i), 17 CFR 240.17Ad-9(i).
    \240\ Exchange Act Rule 17Ad-9(j), 17 CFR 240.17Ad-9(j).
    \241\ Exchange Act Rule 17Ad-9(k), 17 CFR 240.17Ad-9(k).
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    Finally, Rule 17Ad-9(l) clarifies that the term ``file'' includes
both automated and manual records.\242\
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    \242\ Exchange Act Rule 17Ad-9(l), 17 CFR 240.17Ad-9(l).
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    Rule 17Ad-10 \243\ requires each recordkeeping transfer agent to
post promptly certificate detail to its master securityholder file
after a security is transferred, purchased, or redeemed. The meaning of
the term ``promptly'' varies with the relevant transaction but
generally is five business days, although for exempt transfer agents
under Rule 17Ad-4(b) promptly means 30 calendar days and for transfer
agents functioning solely for their own or their affiliated companies'
securities and using batch processing promptly means ten business
days.\244\ Timely updating of the master securityholder file is
required because delayed posting or the failure to post would promote
the proliferation of record inaccuracies that could impede the accurate
payment of dividends and the processing of proxy solicitations.\245\
Rule 17Ad-10(g) requires, with certain exceptions, that any transfer
agent that erroneously issues securities that result in an overissuance
\246\ must ``buy-in'' (i.e., purchase securities in the open market)
securities equal to the number of shares (in the case of equity
securities) or principal dollar amount (in the case of debt securities)
of the overissuance.\247\ The buy-in requirement is designed to deter
transfer agents from permitting record differences to accrue and
encourages them to maintain complete and accurate records that assure
that securityholders will receive all appropriate corporate
distributions and communications.\248\
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    \243\ Exchange Act Rule 17Ad-10, 17 CFR 240.17Ad-10.
    \244\ See 17Ad-9 through 13 Proposing Release, supra note 2.
    \245\ See infra Section V.B. for further discussion of proxy
services.
    \246\ See supra note 235.
    \247\ Exchange Act Rule 17Ad-10(g)(1), 17 CFR 240.17Ad-10(g)(1).
    \248\ See Maintenance of Accurate Securityholder Files and
Safeguarding of Funds and Securities by Registered Transfer Agents,
Exchange Act Release No. 19860 (June 10, 1983), 48 FR 28231 (June
21, 1983) (``Adopting Release for Rule 17Ad-10'').
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    Rule 17Ad-11 \249\ requires that within ten business days following
the end of each month, registered recordkeeping transfer agents report
to issuers and the ARA certain information regarding aged record
differences \250\ when the dollar amount or the number of shares
regarding those shares reach certain preset levels.\251\ The reports
required by 17Ad-11 must set forth the amount of aged record
differences, the reasons for any difference, and the steps being taken
to resolve any difference.
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    \249\ Exchange Act Rule 17Ad-11, 17 CFR 240.17Ad-11.
    \250\ Exchange Act Rule 17Ad-11(a)(2), 17 CFR 240.17Ad-11(a)(2).
A record difference becomes an aged record difference if it exists
for ``more than thirty calendar days.''
    \251\ Exchange Act Rule 17Ad-11(b)(1), 17 CFR 240.17Ad-11(b)(1).
The dollar amounts and share thresholds reflected in the table set
forth in Rule 17Ad-11(b)(1) have not been modified since Rule 17Ad-
11 was first adopted in 1983.
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    Rule 17Ad-12 \252\ requires registered transfer agents to safeguard
funds and securities of which they have custody or possession in a
manner reasonably free from theft, loss, destruction, or misuse, in
light of all the facts and circumstances including the cost of
particular safeguards and procedures that might be employed. A
reasonable level of safeguarding is necessary due to various duties of
transfer agents which may include, for example: (i) Holding balance
certificates as transfer agent custodians; (ii) administering DRIPs
which involves the holding of funds and securities; (iii) making
distributions, including of principal, interest and dividends, as
paying agents of issuers; \253\ and (iv) maintaining working
inventories of unissued securities certificates.\254\
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    \252\ Exchange Act Rule 17Ad-12, 17 CFR 240.17Ad-12.
    \253\ See generally, Section VI.C for discussion of paying agent
services.
    \254\ Id.
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    Rule 17Ad-13 \255\ requires registered transfer agents, with
certain exceptions, to file annually with the Commission a report
prepared by an independent accountant concerning the transfer agent's
system of internal controls and related procedures for the transfer of
record ownership and the safeguarding of related securities and funds
based on an annual study and evaluation made in accordance with
generally accepted auditing standards. The purpose of the rule is to
ensure that transfer agents have a system of internal controls adequate
to provide reasonable assurances that securities and funds held by
transfer agents--for example, when a transfer agent facilitates a
dividend or interest payment for an issuer--are safeguarded against
loss from unauthorized use or disposition and that transfer agent
activities are performed promptly and accurately. The rule requires
that the independent accountant's report state whether the annual study
and evaluation was made in accordance with generally accepted auditing
standards using the criteria set forth in the rule and describe and
comment upon any material inadequacies found to exist in the system of
internal accounting control as of the date of the evaluation and any
corrective action taken, or state that no material inadequacy
exists.\256\ An accountant preparing reports under this rule is
expected to use the general standards established by the American
Institute of Certified Public Accountants (``AICPA'').\257\
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    \255\ Exchange Act Rule 17Ad-13, 17 CFR 240.17Ad-13.
    \256\ See Adopting Release for Rule 17Ad-10, supra note 248.
    \257\ Id.
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4. Issue-Specific Rules: Rules 17Ad-14 Through 17Ad-21T
    After the adoption of Rules 17Ad-8 through 17Ad-13, between 1983
and 2013 the Commission continued to adopt new rules to address
specific issues. Specifically, Rules 17Ad-14 through 17Ad-20, as well
as 17Ad-21T, address issues such as tender agent services, signature
guarantee programs, notifications when transfer agents begin or cease
acting for specific issues, lost shareholder searches, processes for
cancelling certificates, transfer of restricted securities, and
anticipated risks associated with Year 2000 compliance.

    Rule 17Ad-14 \258\ requires a registered transfer agent that acts
as a tender agent or a depositary for a party making a tender or
exchange offer to establish and maintain special accounts with all
qualified registered securities depositories that hold the subject
company's securities, thereby enabling depository participants to move
securities to and from the tender agent by book-entry.\259\ Unless a
bidder's depositary establishes an account with a securities
depository, all the subject securities must be tendered in physical
certificate form, rather than by book-entry, which causes
inefficiencies and other problems for securityholders, broker-dealers,
bidders, tender agents, and others.\260\ The purpose of this rule is to
reduce the processing costs and trading inefficiencies that occur when
tender offers are processed in a physical certificate environment and
to make the benefits of processing tender offers by book-entry
available to the investing public and the securities industry.\261\
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    \258\ Exchange Act Rule 17Ad-14, 17 CFR 240.17Ad-14.
    \259\ See discussion infra at p. 104 for definition of ``tender
agent.''
    \260\ Processing of Tender Offers Within the National Clearance
and Settlement System, Exchange Act Release No. 20581 (Jan. 19,
1984), 48 FR 17603 (Apr. 25, 1983).
    \261\ Id.
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    For example, securityholders sometimes have difficulty obtaining
properly denominated physical certificates for tender to the bidder's
depository prior to the offer's expiration date. Also, instances where
there is unavailability of book-entry settlement have resulted in a
substantially higher number of fails-to-deliver between broker-dealers.
As a result, broker-dealers who are unable to satisfy tender
obligations may have to buy securities in the cash market for same-day
delivery (i.e., delivery on the day of the contract), which may create
significant price disparities between the cash market and the regular-
way market (i.e., delivery on the third business day following the day
of the contract).\262\ Prior to the adoption of Rule 17Ad-14, bidders
could insist upon the tender of physical securities certificates
outside of securities depositories (such as to the bidder's broker or
local bank), even if the delivering entities were depository
participants and even if the securities themselves were depository
eligible. Doing so not only increased the number of fails, but
increased brokerage firms' financing expenses and made it more
difficult to settle transactions in a timely way.\263\
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    \262\ Regular way settlement generally refers to settlement that
occurs on a T+3 basis as required pursuant to Exchange Act Rule
15c6-1. Exchange Act Rule 15c6-1, 17 CFR 240.15c6-1. For additional
information on cash, regular way, and other delivery schedules, see
NYSE Rule 64 (2009).
    \263\ For a discussion of tender offers and trade processing
problems that arise when depository book-entry services are not used
during tender offers, see Rule 17Ad-14 Proposing Release, supra note
116.
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    Rule 17Ad-15 \264\ prohibits inequitable treatment of eligible
guarantor institutions (e.g., banks, brokers, and other financial
institutions) that provide signature guarantee programs. The rule
implements Section 17A(d)(5) of the Exchange Act which expressly bars
transfer agents from exercising inequitable treatment of financial
institutions with respect to security guarantees.\265\ The signature
guarantee program requires that a securities certificate bear a
signature by a guarantor institution with a medallion stamp backed by a
surety bond before the transfer agent will accept the certificate for
transfer. The guarantee program allows the high-speed processing of a
large volume of securities certificates that would be impossible if
transfer agents had to examine the creditworthiness of the person
behind each certificate being presented. Specifically, the program
establishes requirements for its members with respect to guaranteeing
and accepting securities certificates. The indorsing signature on a
securities certificate is guaranteed, typically by a financial
institution, by the placement of a signature of the guarantor or its
representative and a medallion stamp backed by a surety bond which, in
effect, states that in event of mishap, the surety will pay for any
damages incurred as a result of a forged signature if the guarantor
does not pay.\266\ With these assurances of financial safety, a
transfer agent is able to accept a securities certificate without
further examination or delay, as is required by the terms of the
program.\267\ Rule 17Ad-15 requires transfer agents to establish
written standards for the acceptance of signature guarantees, and it
authorizes signature guarantee programs. It also enables transfer
agents to reject a request for transfer where a securities certificate
is not guaranteed and bears no medallion stamp or where the guarantor
is neither a member nor a participant in a signature guarantee
program.\268\
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    \264\ Exchange Act Rule 17Ad-15, 17 CFR 240.17Ad-15.
    \265\ Exchange Act Section 17A(d)(5), 15 U.S.C. 17q-1(d)(5).
    \266\ The UCC provides: ``A person who guarantees a signature of
an indorser of a securities certificate warrants that at the time of
signing: (1) The signature was genuine; (2) the signer was an
appropriate person to indorse, or if the signature is by an agent,
the agent had actual authority to act on behalf of the appropriate
person; and (3) the signer had legal capacity to sign.'' U.C.C. 8-
306.
    \267\ There are currently three organizations that provide
signature guarantee programs to their members: Securities Transfer
Agent Medallion Program, Stock Exchange Medallion Program, and New
York Stock Exchange Medallion Program. See, e.g., Signature
Guarantees: Preventing the Unauthorized Transfer of Securities, SEC,
http://www.sec.gov/answers/sigguar.htm.
    \268\ See Acceptance of Signature Guarantees from Eligible
Guarantor Institutions, Exchange Act Release No. 30146 (Jan. 6,
1992), 57 FR 1082 (Jan. 10, 1992) (adopting release for Rule 17Ad-
15).
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    Rule 17Ad-16 requires a registered transfer agent to provide
written notice to an ``appropriate qualified registered security
depository'' (i.e., DTC) \269\ when terminating or assuming transfer
agent services on behalf of an issuer or when changing its name or
address.\270\ The rule is intended to address the problem of
unannounced transfer agent changes that adversely affect the prompt
transfer of securities certificates by causing needless delays, costs,
and risks.\271\ Depositories and other entities in the marketplace must
have the correct information in order to send transfer instructions to
the appropriate transfer agent at the correct address. In addition to
causing delay in execution of the instructions, certificates sent to
the wrong address may result in a loss of certificates.
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    \269\ Rule 17Ad-16 defines an ``appropriate qualified registered
securities depository'' as the ``qualified registered securities
depository'' that the Commission so designates by order or, in the
absence of such designation, the qualified registered securities
depository that is the largest holder of record of all qualified
registered securities depositories as of the most recent record
date. In 1995, the Commission issued an order approving a DTC rule
filing in which DTC was designated as the ``appropriate qualified
registered securities depository'' to receive notices of transfer
agent changes pursuant to Rule 17Ad-16 in order to eliminate
uncertainty about where registered transfer agents should direct
Rule 17Ad-16 notices, and to reduce unnecessary costs and
administrative burdens for transfer agents and registered securities
depositories. See Securities Exchange Act Release No. 35378 (Feb.
15, 1995), 60 FR 9875 (Feb. 22, 1995) (File No. SR-DTC-95-02).
    \270\ Exchange Act Rule 17Ad-16, 17 CFR 240.17Ad-16.
    \271\ Adopting Release for Rule 17Ad-16, supra note 147.
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    Rule 17Ad-17 is designed to ensure that the transfer agents,
brokers, dealers, and other financial intermediaries make adequate
efforts to find lost securityholders.\272\ It was first adopted in 1997
\273\ and later amended at the beginning of 2013.\274\ The rule defines

``lost securityholder'' as a securityholder for whom an item of
correspondence sent to his or her last known address was ``returned as
undeliverable'' and requires transfer agents, brokers, and dealers to
conduct two database searches in their efforts to locate a lost
securityholder. It defines ``unresponsive payee'' to mean a
securityholder to whom a paying agent has sent a regularly scheduled
check which was not cashed or otherwise negotiated before the earlier
of either the paying agent's sending the next regularly scheduled check
or of 6 months after the sending of the not yet negotiated check.\275\
Any ``paying agent,'' defined for purposes of Rule 17Ad-17 as ``any
broker, dealer, investment advisor, 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,'' shall
provide to each unresponsive payee not less than one written notice
stating that such payee has been sent a check that has not yet been
negotiated.
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    \272\ Exchange Act Rule 17Ad-17, 17 CFR 204.17Ad-17.
    \273\ Lost Securityholders, Exchange Act Release No. 39176 (Oct.
1, 1997), 62 FR 52229 (Oct. 7, 1997).
    \274\ Lost Securityholders and Unresponsive Payees, Exchange Act
Release No. 68668 (Jan. 16, 2013), 78 FR 4768 (Jan. 23, 2013)
(``Adopting Release for 17Ad-17 Amendments'').
    \275\ Id.
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    Rule 17Ad-19 was adopted in 2003 and requires every transfer agent
to establish and implement written procedures for the cancellation,
storage, transportation, destruction, or other disposition of
securities certificates.\276\ Specifically, it requires transfer agents
to mark each cancelled securities certificate with the word
``cancelled,'' to maintain a secure storage area for cancelled
certificates, to maintain a retrievable data base for of all its
cancelled, destroyed, or otherwise disposed of certificates, and to
have specific procedures for the destruction of cancelled certificates.
The rule was adopted in response to a series of major thefts of
cancelled certificates from transfer agent facilities, after which the
stolen certificates were recirculated into the marketplace on a massive
scale and fraudulently sold or used as loan collateral.\277\
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    \276\ Exchange Act Rule 17Ad-19, 17 CFR 240.17Ad-19.
    \277\ See 17Ad-19 Adopting Release, supra note 2. We note that
in more than a decade since the adoption of Rule 17Ad-19, we are not
aware of any major thefts of cancelled securities certificates or
their unlawful recirculation back into the marketplace.
---------------------------------------------------------------------------

    Rule 17Ad-20 prohibits registered transfer agents from effecting
the transfer of any equity security registered pursuant to Section 12
or that subjects an issuer to reporting under Section 15(d) of the
Exchange Act if such security is subject to any restriction or
prohibition on transfer to or from a securities intermediary in its
capacity as such.\278\ In the 2004 adopting release for the rule, the
Commission observed that issuers imposing such restrictions on transfer
to intermediaries believe that ``precluding ownership by certain
securities intermediaries forces broker-dealers to deliver certificates
on each transaction and eliminates the ability of naked short sellers
to maintain a naked short sale position.'' \279\ The Commission
believed Rule 17Ad-20 was necessary to prevent transfer agent
facilitation of the transfer of securities subject to such
restrictions, because these types of restrictions disrupted prompt and
efficient clearing and settlement in the U.S. securities markets.
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    \278\ Exchange Act Rule 17Ad-20, 17 CFR 240.17Ad-20.
    \279\ See Issuer Restrictions or Prohibitions on Ownership by
Securities Intermediaries, Exchange Act Release No. 50758, text
following n.41 (Nov. 30, 2004), 70 FR 70852 (Dec. 9, 2004) (adopting
release for Rule 17Ad-20). See also U.C.C. 8-501 et seq.
---------------------------------------------------------------------------

    Two rules relate to Year 2000 compliance. Rule 17Ad-18 (Year 2000
Reports to be Made by Certain Transfer Agents) was adopted by the
Commission on July 13, 1998 and required non-bank transfer agents to,
among other things, file a report attesting to the Y2K compliance of
their mission critical computer systems by August 31, 1998.\280\ The
rule also required non-bank transfer agents to notify the SEC of any
material Y2K problems that would affect the millennium transition.
Similarly, Rule 17Ad-21T required non-bank transfer agents to ensure
that their mission critical computer systems were Year 2000 compliant
by August 31, 1999 or to fix any non-compliant systems by November 5,
1999.\281\ The purpose was to reduce risk to investors and the
securities markets that were posed by non-bank transfer agents that had
not adequately prepared their computer systems for millennium
transition.
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    \280\ Exchange Act Rule 17Ad-18, 17 CFR 240.17Ad-18.
    \281\ Exchange Act Rule 17Ad-21T, 17 CFR 240.17Ad-21T.
---------------------------------------------------------------------------

B. Bank and Internal Revenue Service Regulations

    There are approximately 95 registered transfer agents that are
banks or subsidiaries of banks. For national banks and banks operating
under the Code of Law for the District of Columbia, the ARA is the
Office of the Comptroller of the Currency (``OCC''); for State member
banks, subsidiaries thereof, bank holding companies, and bank
subsidiaries thereof the ARA is the Federal Reserve Board; and for
banks insured by the FDIC (non-members of the Federal Reserve), the ARA
is the FDIC. Collectively, we refer to transfer agents registered with
the OCC, FDIC, or Federal Reserve Board as ``bank transfer agents.''
For non-bank transfer agents (i.e., all other transfer agents), the ARA
is the Commission.\282\
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    \282\ Exchange Act Section 3(a)(34), 15 U.S.C. 78c(a)(34).
---------------------------------------------------------------------------

    Prior to the 1975 Amendments and the adoption of the Commission's
transfer agent rules discussed in Section IV.A above, many of the
organizations performing transfer agent services were banks or trust
companies regulated by bank regulators. As noted in the Unsafe
Practices Study, at that time, ``[t]he power of the bank regulatory
officials over the transfer function [was] not specific. Rather their
concern [was] whether the performance of the transfer function may
endanger the financial stability of the bank.'' \283\ Today, pursuant
to the 1975 Amendments and the Commission's transfer agent rules
enacted thereunder, bank transfer agents must comply with both the
Commission's transfer agent rules and any applicable rules promulgated
by their ARA. Accordingly, bank transfer agents who are required to
register as a transfer agent under the Exchange Act initially register
with their appropriate ARA, but must file an annual Form TA-2 with the
Commission.\284\ The bank ARAs have not promulgated separate rules
designed to address specifically the transfer functions of bank
transfer agents, but instead generally require bank transfer agents to
comply with the Commission's transfer agent rules. OCC, for example,
explicitly applies the Commission's transfer agent rules to the
``domestic activities of registered national bank transfer agents.''
\285\ Similarly, the Federal Reserve Board's rules provide that the
Commission's transfer agent rules ``apply to member bank transfer
agents.'' \286\ The FDIC has stand-alone registration requirements for
transfer agents and may examine transfer agents for both safety and
soundness considerations under applicable banking regulations and for

compliance with the Commission's transfer agent rules.\287\
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    \283\ See Unsafe Practices Study, supra note 17, at 38. In
contrast, the Exchange Act and the rules and regulations promulgated
thereunder, including the Commission's transfer agent rules, are
focused on protecting investors and the securities markets. See Rule
17Ad-1 through 17Ad-7 Adopting Release, supra note 145 (noting the
importance of avoiding impediments to ``the Commission's efforts to
provide necessary or appropriate regulations for transfer agents in
the broader context of the establishment of a national system for
the prompt and accurate clearance and settlement of securities
transactions.'').
    \284\ See supra Section IV.A.1.
    \285\ 12 CFR 9.20.
    \286\ 12 CFR 208.31.
    \287\ See FDIC Trust Examination Manual, sec. 11.B.1.b
(Statutory Framework), available at https://www.fdic.gov/regulations/examinations/trustmanual/section_11/section11toc.html
(``Registered Transfer Agent Examination Manual'').
---------------------------------------------------------------------------

    With respect to examination and enforcement, both the ARA and the
Commission have examinations powers over bank transfer agents, however,
the Commission must provide notice to the appropriate ARA prior to
conducting an examination and to arrange for a joint examination where
desired.\288\ In addition, both the Commission and the ARA have
enforcement authority over bank transfer agents.\289\
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    \288\ See Exchange Act Section 17(b), 15 U.S.C. 78q(b).
    \289\ See generally, Exchange Act Section 17A(d), 15 U.S.C. 78q-
1(d).
---------------------------------------------------------------------------

    In addition to complying with the Commission's transfer agent
rules, bank transfer agents must also comply with their ARA's rules and
standards. Those may supplement or exceed the Commission's rules. In
part, this may be due to the fact that a bank transfer agent's
activities could impact the proper functioning of the bank itself. As
the FDIC explains in Section 11 of its Trust Examination Manual, one
rationale for its transfer agent examination program is to ``to detect
and prevent situations which might threaten the viability of banks
through diminution of their capital accounts.'' \290\ It further notes
that ``to the extent that a registered transfer agent fails to conduct
transfer agent operations in a safe and efficient manner . . . the
transfer agent function could incur contingent liabilities or estimated
losses which could adversely impact the bank's capital accounts.''
\291\
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    \290\ See Registered Transfer Agent Examination Manual, supra
note 287, at sec. 11.B (Introduction discussing the rationale for
transfer agent examinations).
    \291\ Id. at sec. 11.B.1.b (The Statutory Framework).
---------------------------------------------------------------------------

    As a result, for example, the FDIC examines its transfer agents for
internal control and risk management policies and procedures that are
similar to what is required for banks.\292\ With respect to internal
controls, the FDIC specifies not only what it expects from the agent in
order to demonstrate compliance with the Commission's rules, but
additional standards as well. These standards apply whether the
transfer agent is housed within the bank's trust department, is its own
operating unit, or if the transfer agent activities are outsourced. The
FDIC specifies suggested means for ensuring control over physical
security, such as controlled access, secure safes and cabinets, and
maintenance of access logs, and generally expects to see management
oversight of operations consistent with bank management oversight.
Supervision of the transfer agent operations may be delegated, but
ultimately rests with the bank's Board and senior management.\293\
---------------------------------------------------------------------------

    \292\ Id. at sec. 11.G (Management), sec. 11.H (Internal
Controls).
    \293\ Id.
---------------------------------------------------------------------------

    Separately, depending on its duties, an OCC-registered transfer
agent also may have to comply with statutory requirements for the
treatment of ``assets held in any fiduciary capacity.'' \294\ For
example, entities servicing in a fiduciary capacity may be required to
segregate the fiduciary funds from the ``general assets'' of the bank
and have a separate accounting for transactions involving the
segregated funds.\295\
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    \294\ 12 U.S.C. 92a(c). See also 12 CFR 9.2 (``Fiduciary
capacity'' includes transfer agents and registrars of stocks and
bonds).
    \295\ 12 U.S.C. 92a(c).
---------------------------------------------------------------------------

    In addition, depending on the nature and scope of the services that
transfer agents provide, they must comply with certain regulations and
other guidance issued by the U.S. Department of the Treasury
(``Treasury'') and the Internal Revenue Service. For example, transfer
agents track and report to the Internal Revenue Service the dividend
income and share sale activity they facilitate on behalf of issuers via
Form 1099 reporting,\296\ and follow federal law requirements
concerning tax withholding, where appropriate.\297\
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    \296\ See 2016 Instructions for Form 1099-DIV, available at
http://www.irs.gov/pub/irs-pdf/i1099div.pdf (last visited November
20, 2015) (generally for information regarding disclosure of
dividend payments).
    \297\ For example, the Foreign Account Tax Compliance Act
(``FATCA''), enacted in 2010, is intended to reduce tax evasion by
U.S. individuals with respect to income from financial assets held
outside the United States by requiring foreign financial
institutions to, among other things, report directly to the Internal
Revenue Service certain information about financial accounts held by
U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold
a substantial ownership interest. See Hiring Incentives to Restore
Employment Act, Pub. L. 111-147, Sec. Sec.  501-541 (1986). Under
FATCA, foreign financial institutions such as investment funds
domiciled outside the United States are permitted to contract with
their transfer agents or other agents to perform certain due
diligence and other FATCA obligations on their behalf. A transfer
agent's service agreement may take into account these new
responsibilities, under which the transfer agent may be required to
perform due diligence on all investors listed in the investor
record, report on U.S. individuals and institutions investing in the
fund, and apply FATCA withholding to certain payments. For more
information on regulations, rulings, notices, announcements, and
other FATCA-related guidance or requirements for financial
institutions, see, e.g., FATCA- Regulations and Other Guidance, IRS,
http://www.irs.gov/Businesses/Corporations/FATCA-Regulations-and-Other-Guidance.
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C. SRO Rules and Requirements Applicable to Transfer Agents

    This section discusses some of the SRO rules and requirements
applicable to transfer agents. While we focus here on NYSE and DTC
requirements, we do so by way of example only. Other SROs may have
additional rules which could apply to transfer agents in different
contexts.
1. NYSE Requirements
    Transfer agents for NYSE listed securities are also subject to NYSE
requirements. The requirements focus on (i) dual registrars and
transfer agents; (ii) turnaround times; (iii) capitalization; and (iv)
insurance coverage. The requirements also address transfer agent
personnel, safeguarding, and co-transfer agents.
    First, the NYSE Listed Company Manual (``NYSE LCM''), Section
601.01(B), provides that one person may serve as both registrar and
transfer agent subject to compliance with the following conditions: (i)
Meeting insurance and net capital requirements (discussed in more
detail below); (ii) maintaining the functions separately and distinctly
with appropriate internal controls; (iii) annual review of such
internal controls by the transfer agent's independent auditors; (iv)
submitting financial statements to the exchange; and (v) obtaining a
certification from the transfer agent's insurer that NSYE insurance
requirements have been met. This provision is less restrictive than
stock exchange prohibitions on serving as a dual registrar and transfer
agent that existed in earlier eras.\298\ It is the understanding of the
Commission staff that outside or independent registrars are rarely used
today.\299\
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    \298\ See Rockwell Study, supra note 19, at 101 (1969 study
discussing NYSE prohibition on serving as dual registrar and
transfer agent); Securities Exchange Act Release No. 21499, File No.
SR-NYSE-84-33 (Nov. 19, 1984) (discussing prior 1971 NYSE rule
change permitting banks and trusts to serve as dual registrar and
transfer agent and approving NYSE rule change to eliminate
prohibition on acting as dual transfer agent and registrar that had
applied to transfer agents other than banks and trusts, subject to
certain conditions).
    \299\ Separate registrars and transfer agents still were common
between 1977 and 1983, when the Commission adopted the majority of
its transfer agent rules. Although even by that point, stock
exchanges had relaxed certain prohibitions on serving as dual
transfer agent and registrar, the practice often was followed
because many securities industry participants believed that the
independent registrar served an audit function that protected
investors. See Study of the Securities Industry: Hearings Before the
Subcomm. on Commerce and Fin. of the H. Comm. on Interstate and
Foreign Commerce, 92nd Cong. app. DD 2391 (1971) (``1971 Study of
the Securities Industry Hearings'') (Statement of Herman W. Bevis,
Executive Director of BASIC).

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    Second, as noted above, NYSE also imposes turnaround time
requirements. NYSE LCM Section 601.01(A)(2) requires that routine
transfers (as defined in Exchange Act Rule 17Ad-1) ``must be processed
under normal conditions within 48 hours of receipt of the securities by
the transfer agent at its address designated for registration of
transfers.'' The 48 hour turnaround requirement was adopted by the NYSE
in 1971 (originally as Rule 496) in the immediate wake of the transfer
agent problems during the Paperwork Crisis.\300\ The Commission adopted
its Rule 17Ad-2 turnaround requirement (providing for three day
turnaround) approximately six years later in 1977. In the adopting
release for Rule 17Ad-2, the Commission stated ``The adopted rules are
not intended to and do not supersede any rules of self-regulatory
organizations which impose more stringent performance standards.''
\301\
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    \300\ See Securities Exchange Act Release No. 21499, File No.
SR-NYSE-84-33 n.16 (Nov. 19, 1984) (noting the NYSE adopted the 48
hour turnaround policy in 1971); 2011 NYSE Rule Archives, Rule 496.
    \301\ Rule 17Ad-1 through 17Ad-7 Adopting Release, supra note
145, at 32404 n.4.
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    Third, NYSE LCM Section 601.01(A)(1)(i) requires that a transfer
agent must have at least $10 million in ``capital, surplus (both
capital and earned), undivided profits, and capital reserves.'' Where a
transfer agent is unable to meet this capital requirement, NYSE LCM
Section 601.01(A)(12) provides for a lower alternative capital standard
of $2 million that the transfer agent may meet if it maintains certain
additional insurance coverage.\302\ The requirements may also be
satisfied by a parent company.\303\ Fourth, NYSE LCM Section
601.01(A)(1)(ii) requires that a transfer agent maintain insurance
coverage of at least $25 million ``to protect securities while in
process.'' \304\
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    \302\ See NYSE Listed Co. Manual Sec.  601.01(A)(12) (2013)
(making the lower capital standard conditional on the maintenance by
the transfer agent of ``errors and omissions insurance coverage in
an amount which, taken together with its capital, surplus (both
capital and earned), undivided profits, and capital reserves, equals
at least $10,000,000 and, provided further, that such transfer agent
maintains the insurance required by Para.601.01(A)(1)(ii).'').
    \303\ NYSE Listed Co. Manual Sec.  601.01(A)(10) (2013).
    \304\ NYSE Listed Co. Manual Sec.  601.01(A)(1) (2013).
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    The NYSE also requires transfer agents to be staffed with
``experienced personnel qualified to handle so-called `legal terms' and
to advise on and handle other transfer problems.'' \305\ A transfer
agent is also required to assume responsibility and liability for
securities in its possession and must ``provide adequate facilities for
the safekeeping of securities in its possession or under its control.''
\306\ Additional provisions address other items specific to the NYSE,
co-transfer agents, and independent registrars.\307\
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    \305\ NYSE Listed Co. Manual Sec.  601.01(A)(6) (2013).
    \306\ NYSE Listed Co. Manual Sec.  601.01(A)(4),(7) (2013).
    \307\ See generally, NYSE Listed Co. Manual Sec.  601.01(A)-(D)
(2013).
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2. DTC Requirements
    Transfer agents who participate in DRS must comply with DTC rules
and regulations. Many transfer agents participate in DRS, especially
because national U.S. securities exchanges, including NYSE and NASDAQ,
require newly listed securities to be DRS eligible.\308\
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    \308\ See NYSE Listed Co. Manual Sec.  501.00 (2013) (requiring
``all securities listed on the Exchange [to] be eligible for a
direct registration system operated by a securities depository'');
NASDAQ Rule 5210(c) (requiring ``all securities initially listing on
Nasdaq, except securities which are book-entry only, [to] be
eligible for a Direct Registration Program operated by a clearing
agency registered under Section 17A of the [Exchange] Act.'').
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    DTC requires transfer agents to satisfy four primary requirements
before being eligible to process DRS transactions, including the
following:

     Because DRS is integrated for communication purposes
into DTC's Profile system, transfer agents must become ``Limited
Participants'' in DTC by submitting an application to the DRS
Program Administration for DTC approval.\309\
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    \309\ Profile was implemented by DTC in 2000 to ``electronically
convey an investor's request to move from one form of securities
ownership to another. Profile takes the place of the paper
transaction advice for electronic movement of securities positions
between street-name positions and direct registration book-entry
positions. Profile includes all the data fields listed on the paper
transaction advice, including the investor's broker-dealer account
number, investor's DRS account number, Tax I.D./Social Security
number, full registration, and CUSIP.'' DTC, An Overview, available
at http://www.dtc.org/dtcpublic/html/lob2/prod6/drsdetail.htm. In
addition, since 2001, the Profile Surety Program has provided for a
surety bond to help mitigate the risks for parties using DRS and
Profile, similar to a medallion stamp on a certificated security.
---------------------------------------------------------------------------

     Participate in DTC's FAST program by becoming a FAST
agent and agreeing to DTC's Operational Criteria for FAST Transfer
Agent Processing (``FAST criteria''). The FAST criteria outline
rules for securities transfers through FAST, DTC's Operational
Arrangements, and DTC's Balance Certificate Agreement. The
Operational Arrangements include, among other things, DTC's
requirements for issues to be DTC-eligible, additional transfer
requirements for FAST agents, record date requirements, and dividend
and income notification procedures. By signing the Balance
Certificate Agreement with DTC, transfer agents agree to maintain
DTC-eligible inventory in the form of jumbo certificates registered
in the name of DTC's nominee, Cede & Co., and that they will
electronically reconcile DTC participants' daily deposit and
withdrawal activities.
     Establish and maintain electronic communication links
with DTC through Profile so that DTC participants (e.g., broker-
dealers) and limited participants (e.g., transfer agents) can
communicate investors' instructions electronically. DTC requires
transfer agents to complete DRS and Profile training before using
Profile. Profile includes data fields that would be included in a
traditional paper transaction, including the investor's broker-
dealer account number, investor's DRS account number, Tax I.D./
Social Security number, and CUSIP numbers of the securities. Once
those instructions are transmitted, the actual movement of
securities ownership takes place in DRS.
     Participate in DTC's Profile Surety Program, which
functions similarly to the medallion guarantee programs for paper
based transactions by providing for a surety bond to back the
representations made by the transacting parties.\310\
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    \310\ See Securities Exchange Act Release No. 41862 (Sept. 10,
1999), 64 FR 51162, 51163 (Sept. 21, 1999) (File No. SR-DTC-99-16).
See also supra note 86 (regarding FAST requirements).

    Additionally, DTC criteria that must be met by a securities issuer
to ensure its securities are eligible for DRS and Profile may
indirectly apply to transfer agents acting on behalf of the issuer. For
example, DTC requires issuers to mail DRS book-entry statements to
registered owners evidencing their holdings at least once a year.\311\
Transfer agents acting on behalf of issuers wishing to participate in
DRS may therefore be asked by their issuer clients to handle this
statement mailing function.
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    \311\ DTC requirements for DRS and Profile eligible transfer
agents and issuers are discussed in greater detail at Direct
Registration System, DTCC, http://www.dtc.org/dtcpublic/html/lob2/prod6/drsdetail.htm (last visited November 20, 2015).
---------------------------------------------------------------------------

D. Regulation of Transfer Agents Under State Law

    Transfer agents are subject indirectly to state corporation law
when acting as agents of corporate issuers, and they are directly
subject to state commercial law, principal-agent law, and other laws,
many of which are focused on corporate governance and the rights and
obligations of issuers and securityholders.\312\ While a full
discussion of all state laws applicable to transfer agents is beyond
the scope of this release, the transfer of investment securities is
primarily governed by UCC Article 8, which has been adopted by the
legislatures of all 50 states,\313\ the District of Columbia, Puerto
Rico, and the Virgin Islands. Article 8 was most

recently revised in 1994 to introduce the concept of a securities
entitlement as a way to simplify and clarify the rules for the modern
street name system.\314\ Although UCC Article 8 is intended to provide
a uniform and practical definition of the responsibilities of issuers
and their agents in issuing and transferring securities, it does not
encompass or preempt the complete body of state laws that may relate to
transfer agent activity.\315\ Transfer agents may also be subject to
the laws of the states of incorporation for both issuers and their
securityholders that apply to specific services provided by the
transfer agent, such as data privacy.\316\
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    \312\ See, e.g., Del. Code Ann. tit. 8 (Delaware General
Corporation Law), Del. Code Ann. tit. 6, art. 8 (Investment
Securities), Restatement (Third) of Agency (2006).
    \313\ Louisiana has enacted the provisions of Article 8 into the
body of its law, among others, but has not adopted the UCC as a
whole.
    \314\ U.C.C. 8-501 et seq. (1994).
    \315\ For example, in addition to UCC Article 8, various state
laws relating to contracts, principal agent relationships, estoppel,
fraud, bankruptcy, escheatment (or abandoned property) and other
areas may apply to a specific transaction or situation.
    \316\ For example, California's privacy statute which became
effective in 2003, was the first significant effort by a state to
assert substantive regulation of privacy of customer data. See Cal.
Civ. Code Sec. Sec.  1798.80-1798.84. While state regulations vary
across jurisdictions, other states have followed suit with similar
regulatory initiatives. See, e.g., Minn. Stat. Sec.  325E.61, Neb.
Rev. Stat. Sec. Sec.  87-801-807.
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V. Evolution of Recordkeeping, Transfer, and Related Transfer Agent
Activities

    This section discusses some of the core recordkeeping, transfer,
and other activities that transfer agents engage in, the manner in
which the current transfer agent rules apply to those activities, and
how those activities have evolved over time. The world looks very
different today than it did in 1977, when the first transfer agent
rules were adopted. Since then, the increased use and decreased cost of
technology, the expansion of corporate actions to bring securities into
the public market, the continued dematerialization of securities, and
other changes have resulted in significant evolution and changes to the
types of services transfer agents provide and the manner in which they
provide them. At the same time, with limited exceptions, the
Commission's transfer agent rules have not been updated. As a result,
there may be divergence between modern transfer agents' activities and
the activities that the Commission's rules are designed to regulate.

A. Recordkeeping, Transfer, Issuance, and Corporate Actions

    All transfer agents perform a number of core recordkeeping,
transfer, and other services related to their primary function of
facilitating the transfer of securities. This section discusses some of
the activities transfer agents engage in with respect to these services
and the relevant transfer agent rules applicable to them.
1. Recordkeeping: Rules 17Ad-9, 10, and 11
    Transfer agents have direct responsibility for maintaining on
behalf of the issuer the currency and integrity of the official list of
the registered owners of an issuer's stocks and bonds, how those stocks
and bonds are held, and how many shares or bonds each investor owns.
This list is defined by Rule 17Ad-9(b) as the master securityholder
file.\317\ Without the master securityholder file, registered owners of
an issuer's securities cannot be assured that they are recognized as
such by the issuer and that they will receive corporate distributions,
communications, and the other rights of security ownership to which
they are entitled.\318\
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    \317\ See Exchange Act Rule 17Ad-9(b), 17 CFR 240.17Ad-9(b).
    \318\ See generally, e.g., Del. Code Ann. tit. 8 Sec. Sec.  170,
173 (authorizing a corporation to pay cash and stock dividends under
certain circumstances); Exchange Act Rule 14c-3, 17 CFR 240.14c-3
(requirement to furnish an annual report to securityholders); Del.
Code Ann. tit. 8 Sec.  212 (providing for voting rights of
stockholders and permitting them to vote by proxy); Del. Code Ann.
tit. 8 Sec.  222 (requirement to send stockholder notice in advance
of stockholder meeting).
---------------------------------------------------------------------------

    Transfer agents also maintain and keep current the control book
which is defined by Rule 17Ad-9(d) as the record of the total number of
shares of equity securities or the principal dollar amount of debt
securities authorized and issued by the issuer for each issue the
transfer agent services.\319\ As discussed above in Section IV.A.3, one
of the main purposes of the control book is to allow the transfer agent
to monitor the number of securities outstanding to prevent overissuance
because the total number of shares reflected in the aggregate on the
master securityholder file should match the number of shares authorized
in the control book.\320\
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    \319\ Exchange Act Rule 17Ad-9(d), 17 CFR 240.17Ad-9(d).
    \320\ When acting in this capacity, a transfer agent may be
referred to as a ``registrar.'' See Exchange Act Section 3(a)(25),
15 U.S.C. 78c(a)(25).
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    Finally, pursuant to Rule 17Ad-6, transfer agents maintain the
transfer journal.\321\ The transfer journal can be a useful tool for
transfer agents and issuers. For example, when reviewed in conjunction
with the master securityholder file, the transfer journal may provide
historical information regarding the issuance and transfer of a
specific security or the holdings of a specific securityholder. The
transfer agent rules do not define transfer journal nor codify
requirements with respect to the transfer journal.
---------------------------------------------------------------------------

    \321\ Exchange Act Rule 17Ad-6, 17 CFR 240.17Ad-6.
---------------------------------------------------------------------------

    The primary recordkeeping rules that apply to the core records
discussed above include Rules 17Ad-9, 17Ad-10, and 17Ad-11. These
recordkeeping requirements are supplemented and reinforced by the
recordkeeping and record retention and preservation requirements found
in Rules 17Ad-6 and 17Ad-7. Rules 17Ad-9 and 17Ad-10 define the term
master securityholder file, provide the specific information regarding
a securityholder that must be maintained on the master securityholder
file, defined in the rules as certificate detail,\322\ and set specific
timing deadlines for recording this information.\323\ In addition, Rule
17Ad-10 imposes obligations on transfer agents to carry over any
existing certificate detail where they succeed to the maintenance of a
master securityholder file that was maintained in an earlier format or
by a predecessor transfer agent.\324\
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    \322\ See supra Section IV.A.3. We note that the ``certificate
detail'' requirements in Rule 17Ad-9 apply to both certificated
securities and book-entry positions. Further, while we focus here on
Rule 17Ad-9's certificate detail requirements, Rule 17Ad-9(a)(4) is
relevant to other rules that depend on obtaining securityholders'
address information such as Rules 17Ad-12 and 17Ad-17. We also note
that Rule 17Ad-9(b) permits registered investment companies to
maintain multiple, but linked, automated files with respect to book-
entry securities.
    \323\ With certain exceptions, certificate details must be
posted within five business days, unless a transfer agent is an
``exempt transfer agent'' under Rule 17Ad-4(b) or an issuer acting
as its own transfer agent for its own securities. Exchange Act Rule
17Ad-10(a)(2)(i)-(ii), 17 CFR 240.17Ad-10(a)(2)(i)-(ii).
    \324\ See Exchange Act Rule 17Ad-10(h), 17 CFR 240.17Ad-10(h).
As discussed below in Section VI.B, the rule does not require
predecessor transfer agents to turn over such information to the
issuer or to a successor transfer agent.
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    The Commission's transfer agent rules seek to promote accurate
recordkeeping by transfer agents by establishing specific requirements
when a transfer agent identifies a specific type of discrepancy in its
records referred to in Rule 17Ad-9(g) as a record difference.\325\ Rule
17Ad-10(b) requires transfer agents to ``exercise diligent and
continuous attention to resolve all record differences.'' Further, Rule
17Ad-10(b) requires that every recordkeeping transfer agent maintain
and keep current an accurate master securityholder file and subsidiary
files, and if a record difference is identified,

then both the master securityholder file and subsidiary files must
accurately represent all relevant debits and credits until the record
difference is resolved.\326\
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    \325\ Exchange Act Rule 17Ad-9(g), 17 CFR 240.17Ad-9(g). For
additional discussion of the goals and objectives of the
Commission's transfer agent rules, see supra Section IV.
    \326\ Exchange Act Rule 17Ad-10(b), 17 CFR 240.17Ad-10(b). We
also note that, as part of a transfer agent's obligation to monitor
against overissuances, Rule 17Ad-10(g) imposes buy-in obligations
when an actual physical overissuance has occurred that was caused by
the transfer agent. Exchange Act Rule 17Ad-10(g), 17 CFR 240.17Ad-
10(g). There are limited exceptions to this requirement. See
Exchange Act Rules 17Ad-10(g)(2)-(3), 17 CFR 240.17Ad-10(g)(2)-(3).
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    As discussed above, if a record difference exists for ``more than
thirty calendar days,'' it becomes an aged record difference under Rule
17Ad-11(a)(2).\327\ Depending upon the aggregate market value of the
aged record differences for a particular issuer and the capitalization
of the issuer, Rule 17Ad-11(b) may require the transfer agent to send a
monthly report to the affected issuer.\328\ Depending on the total
number of issuers serviced and the aggregate market value of all record
differences across all issuers serviced, the transfer agent may also
need to make reports to its ARA pursuant to Rule 17Ad-11(c).\329\
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    \327\ Exchange Act Rule 17Ad-11(a)(2), 17 CFR 240.17Ad-11(a)(2).
    \328\ Exchange Act Rule 17Ad-11(b), 17 CFR 240.17Ad-11(b). Rule
17Ad-11(b) also requires, without imposing any minimum threshold as
with the amount of aged record differences, that the transfer agent
report to issuers concerning any securities bought-in pursuant to
Rule 17Ad-10(g) or reported as bought-in pursuant to Rule 17Ad-10(c)
during the preceding month.
    \329\ Exchange Act Rule 17Ad-11(c), 17 CFR 240.17Ad-11(c). The
report to the ARA must also include information concerning buy-ins
required by Rule 17Ad-10(g) when the aggregate market value of all
buy-ins during a calendar quarter exceeds $100,000. Id.
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2. Securities Transfers, Exchanges, and Conversions: Rules 17Ad-9, 10,
12, and 19
    Transfer agents are integrally involved in effecting transfers of
ownership of securities, as well as exchanging and converting
securities.\330\ For example, an equity sale would usually involve a
transfer. In contrast, a stock-for-stock merger, where the equity
security of Company A is exchanged for an equity security of Company B
(and Company B is the disappearing company) would involve an exchange.
Finally, a securityholder's election to convert a convertible debt
security into an equity security would usually involve a conversion.
While these transfer agent services vary in terms of definition, the
transfer agent rules apply to all of them in substantially similar
ways. Therefore, for the purposes of describing all of these services
in the discussion that follows, we will focus on the activities and
rules applicable to transfers.
---------------------------------------------------------------------------

    \330\ The terms ``exchange'' and ``conversion'' are used in
Exchange Act Section 3(a)(25) and in the Commission's transfer agent
rules but are not defined in the Commission's transfer agent rules.
The term ``exchange'' is commonly used to refer to the trading of
specific securities for another asset, usually without an
accompanying change in ownership. The term ``conversion'' is
commonly used to refer to the changing into or substitution of one
security for another security or asset under specific conditions,
also without an accompanying change in ownership.
---------------------------------------------------------------------------

    In connection with transfers of certificated securities, the first
steps in the transfer process are to match the certificate detail with
the master securityholder file, verify the signature guarantee, and
then cancel the negotiable certificate that has been presented for
transfer. With respect to verifying the signature, presentation by the
transferor typically involves providing the transfer agent an indorsed
security certificate bearing a medallion stamp. In some cases, the
indorsement and assignment may be made not on the certificate itself
but by an executed power of attorney authorizing the transfer of
ownership on the books of the issuer.\331\
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    \331\ See supra note 18 (regarding powers of attorney).
---------------------------------------------------------------------------

    Rule 17Ad-19 governs certificate cancellation and requires that
``every transfer agent involved in the handling, processing, or storage
of securities certificates shall establish and implement written
procedures for the cancellation, storage, transportation, destruction,
or other disposition of securities certificates.'' \332\ The rule
grants transfer agents flexibility to develop their own procedures, but
depending on which procedures they adopt (i.e., cancellation,
destruction, or other disposition), they must comply with minimum
requirements regarding three general areas: (i) The manner of
cancellation and destruction of certificates; (ii) the storage and
transport of cancelled certificates; and (iii) recordkeeping with
respect to cancelled certificates.\333\
---------------------------------------------------------------------------

    \332\ Exchange Act Rule 17Ad-19(b), 17 CFR 240.17Ad-19(b).
    \333\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-12 governs the safeguarding of cancelled certificates.
First, certificates that are cancelled generally must be stamped or
perforated with the word ``CANCELLED'' and, for any cancelled
certificate that is subsequently destroyed, the destruction of
certificates must be witnessed by authorized personnel of the transfer
agent or its designee.\334\ Second, transfer agents must control access
to the location where cancelled certificates are kept and transport of
cancelled certificates must be made in a ``secure manner.'' \335\ If
cancelled certificates are not destroyed, they must be retained for six
years pursuant to Rule 17Ad-7(d).\336\ Furthermore, Rule 17Ad-12
requires that cancelled certificates be ``held in safekeeping and . . .
handled, in light of all facts and circumstances, in a manner
reasonably free from risk of theft, loss or destruction (other than by
a transfer agent's certificate destruction procedures pursuant to Sec.
240.17Ad-19).'' Third, transfer agents must keep a record regarding
each cancelled certificate that is in transit and records for each
cancelled certificate and destroyed certificate that in both cases are
``indexed and retrievable by CUSIP and certificate number.'' \337\
These records must be kept for three years.
---------------------------------------------------------------------------

    \334\ Exchange Act Rules 17Ad-19(c)(2), (6), 17 CFR 17.24017Ad-
19(c)(2), (6). The requirement to stamp or perforate the certificate
as cancelled does not apply where ``the transfer agent has
procedures adopted pursuant to this rule for the destruction of
cancelled certificates within three business days of their
cancellation.'' In addition, a certificate may be marked
``cancelled'' and stored for a period of time before being
destroyed.
    \335\ Exchange Act Rules 17Ad-19(c)(1), (5), 17 CFR 240.17Ad-
19(c)(1), (5).
    \336\ We note that when the Commission adopted Rule 17Ad-19 in
2003 addressing among other things the destruction of certificates,
it did not amend Rule 17Ad-7(d) to delete the requirement to retain
cancelled security certificates for six years. But concurrently in
2003, the Commission amended Rule 17Ad-7(f) such that ``the records
required to be maintained pursuant to Sec.  240.17Ad-6 may be
retained using electronic or micrographic media. . . .'' See
Exchange Act Rule 17Ad-7(f), 17 CFR 240.17Ad-7(f); Recordkeeping
Requirements for Transfer Agents, supra note 215. We understand that
many transfer agents today follow a practice of destroying
certificates after a period of time in accordance with their
individual policies and in compliance with Rule 17Ad-19 but keep
electronic copies of the cancelled certificate by imaging it to
comply with Rule 17Ad-7 as well as keeping the records required by
Rule 17Ad-19(c)(4) for destroyed certificates.
    \337\ Exchange Act Rule 17Ad-9(c)(5), 17 CFR 240.17Ad-9(c)(5).
The record regarding cancelled certificates in transit must show the
certificate numbers and CUSIP numbers. The records regarding both
cancelled certificates and destroyed certificates must include ``the
CUSIP number, certificate number with any prefix or suffix,
denomination, registration, issue date, and cancellation date.''
Exchange Act Rules 17Ad-9(c)(3)-(4), 17 CFR 240.17Ad-9(c)(3)-(4).
---------------------------------------------------------------------------

    Once the old certificate has been cancelled, the next step in the
transfer of a certificated security will generally involve recording
the change of record ownership of the relevant securities on the master
securityholder file. In the context of certificated securities, this is
done by debiting the securities account of the transferor. Rule 17Ad-
9(f) defines the term ``debit'' as ``a cancellation of appropriate
certificate detail from the master securityholder file.'' Because the
cancellation date is one of the defined elements of certificate detail
under Rule 17Ad-9, together Rules 17Ad-9(a)(6)

and 17Ad-10 have the effect of requiring that the cancellation date be
posted to the master securityholder file, generally within five
business days.\338\
---------------------------------------------------------------------------

    \338\ Exchange Act Rules 17Ad-9-10, 17 CFR 240.17Ad-9-10.
Moreover, Congress in the Dodd-Frank Act has taken another step to
tighten recordkeeping of cancelled securities by adding
``cancelled'' securities as a category of securities that must be
reported to the Commission or its designee. See Exchange Act Section
17(f)(1), 78 U.S.C. 187(f)(1).
---------------------------------------------------------------------------

    The final step in the process of completing a transfer for a
certificated security is for the transfer agent to issue (on behalf of
the issuer) a new security to the transferee. The transfer agent's role
in connection with the issuance stage of transfer is discussed in more
detail in the next section below.
    For uncertificated securities, transfer agents do not issue or
cancel physical securities certificates when transferring securities.
Instead, they effect book-entry transfers by registering the change in
ownership on the master securityholder file, which does not involve the
physical issuance and cancelling of securities certificates. The term
``registering'' means an official form of recording by a person charged
with that function, which is accomplished under Exchange Act Rules
17Ad-9(h) and 17Ad-10(e) by updating the master securityholder file, as
discussed above. Book-entry transfer may be accomplished through DTC's
DRS using DTC's Profile system.\339\ Once the transfer has been
effected, the investor would receive from the transfer agent a
statement of ownership that acknowledges his or her new DRS position.
---------------------------------------------------------------------------

    \339\ See supra note 93.
---------------------------------------------------------------------------

3. Securities Issuance: Rules 17Ad-1 and 2
    Transfer agents are also involved in the issuance of securities,
which may be one of the final stages before completing a transfer, as
discussed above, or could involve a primary offering of securities such
as an initial public offering. Generally, from the perspective of the
transfer agent facilitating a transfer, issuance will involve a credit
to the transferee's securities account, as compared to the cancellation
and transfer processes discussed above, which involve debiting the
securities account of the transferor.
    The clock for turnaround under Rules 17Ad-1 and 17Ad-2 begins when
a transfer agent receives an item and ends when a transfer agent issues
the new security. Thus, from the transfer agent's perspective, issuance
is what stops the clock. Rule 17Ad-2(a) generally has the effect of
imposing a three day deadline on turnaround of transfer of a routine
item.\340\ Rule 17Ad-1 provides in general terms that turnaround is
achieved ``when transfer is accomplished.'' \341\ In turn, ``transfer
is accomplished'' when ``all acts necessary to cancel the certificate
or certificates presented for transfer and to issue a new certificate
or certificates . . . are completed and the item is made available to
the presentor by the transfer agent . . .'' \342\ Thus, with certain
exceptions, the ``made available'' standard \343\ functions similar to
a ``mailbox'' rule because the item is considered to have been made
available when the transfer agent mails the new certificate to the
transferee (or otherwise makes it available).
---------------------------------------------------------------------------

    \340\ If a transfer agent fails to turnaround 90% of routine
items received during a month within three business days of receipt,
certain sanctions apply. See discussion supra Section IV.B for
additional details on the turnaround requirements and requirements
in the event of failure to meet the turnaround requirements.
    \341\ Rule 17Ad-1(c)(2) applies a different measurement of when
turnaround is achieved when an outside registrar is involved:
instead of the clock stopping when the new certificate is presented
to the transferee, it stops when the item is ``made available'' to
the outside registrar. Thus, turnaround will be accomplished when
the transfer agent ``completes all acts necessary to cancel the
certificate or certificates presented for transfer and to issue a
new certificate or certificates, and the item is made available to
an outside registrar.'' Exchange Act Rule 17Ad-1(c)(2), 17 CFR
240.17Ad-1(c)(2).
    \342\ If the presentor has given special instructions, the
timing is measured differently. See Exchange Act Rule 17Ad-1(d), 17
CFR 240.17Ad-1(d).
    \343\ See Exchange Act Rule 17Ad-1(c)(1), 17 CFR 240.17Ad-
1(c)(1).
---------------------------------------------------------------------------

    Upon issuing the new security to the transferee, the transfer agent
must credit the securities account of the transferee receiving the new
security. This is accomplished by posting to the master securityholder
file all of the certificate detail information set forth in Rule 17Ad-
9(a), generally within five business days.\344\
---------------------------------------------------------------------------

    \344\ See Exchange Act Rules 17Ad-9(a), 17Ad-10, 17 CFR
240.17Ad-9(a), 17Ad-10. We note that, in the case of a cancellation,
which involves a ``debit'' to the master securityholder file under
Rule 17Ad-9, the cancellation date would be the only portion of the
``certificate detail'' required to be posted to the master
securityholder file. See Exchange Act Rule 17Ad-9, 17 CFR 240.17Ad-
9.
---------------------------------------------------------------------------

    In the case of an uncertificated security, there is no certificate
to cancel and no new certificate to be issued. Under Rule 17Ad-1(d),
posting the new ownership information to the master securityholder file
changes the ownership information of the securities account and
``completes registration of change in ownership of all or a portion of
those securities.''
    Transfer agents are also responsible for countersigning securities
upon issuance, which provides critical authentication of a security by
an independent, outside actor. In general, ``countersigning'' means a
signature added to a document previously signed by another person for
authentication or confirmation. The second signature confirms the first
signature, and the two signatures together are intended to show the
certificate's legitimacy. In the case of certificated securities, the
first signer is typically an officer of the issuing corporation, and
the countersigner is typically an independent officer of the issuer's
transfer agent. The procedures involved in countersignature of physical
certificates are not mandated by the Exchange Act,\345\ but are
generally the product of other sources of law that either require them
or otherwise address them in certain respects, such as by permitting
them to be made by facsimile.\346\
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    \345\ As discussed in Section IV.A, the Exchange Act, however,
includes countersigning certificates as one element of the
definition of transfer agent in Section 3(a)(25).
    \346\ See, e.g., Del. Code Ann. tit. 8 Sec.  158 (``Any or all
the signatures on the certificate may be a facsimile.'').
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    In the case of DRS shares, where no certificate exists, an investor
has the option of having his or her ownership of securities registered
in book-entry form on the issuer's records or on the books of the
issuer's transfer agent, and in either case the investor receives a
``statement of ownership.'' \347\ In either event, it is an important
verification step in the issuance of a security and highlights the
important role that transfer agents play as intermediaries for the
public interest.
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    \347\ See Concept Release, Transfer Agents Operating Direct
Registration System, Exchange Act Release No. 35038 (Dec. 1, 1994),
59 FR 63652 (Dec. 8, 1994) (``Investors who choose to participate in
a direct registration system could have their securities registered
in book-entry form directly on the books of the issuer and could
receive a statement of ownership in lieu of a securities
certificate.'').
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4. Corporate Actions and Related Services: Rules 17Ad-1, 6, 10, 12, and
13
    A corporate action is an event in the life of a security, typically
instigated by the issuer, which affects a position in that
security.\348\ Examples of common corporate actions include changes
that affect capital structure, such as a merger or acquisition, and
distributions to securityholders, such as a dividend distribution or
principal or interest payment on a debt security. Corporate actions may
also include bankruptcy or liquidation proceedings, conversions,
warrants, exchange offers, subscription

rights, tender offers, and other events.\349\ Generally, corporate
actions can be divided into two broad categories: Mandatory and
voluntary (sometimes referred to as ``elective.'') Mandatory corporate
actions usually affect all securityholders equally and the
securityholder does not have different options from which to choose;
voluntary corporate actions usually allow securityholders to choose
among one or more different elections they can make.
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    \348\ Simmons and Dalgleish, Corporate Actions: A Guide to
Securities Event Management 3-5 (2006).
    \349\ See id. (categorizing major types of corporate actions).
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    Transfer agents may perform a variety of roles and provide a
variety of services, depending on the type and nature of the corporate
action. For example, a transfer agent may take on the role of exchange
agent in a mandatory corporate action, such as a stock-for-stock merger
or a cash-for-stock merger. In a stock-for-stock merger the exchange
agent might facilitate the surrender of outstanding securities for new
securities, and in a cash-for-stock merger the exchange agent might
facilitate the exchange of outstanding securities for cash.
    In both of these examples, under Rule 17Ad-10, the transfer agent
performing exchange agent services generally must update the master
securityholder file with certificate details within five business days.
But because the transfer associated with some of the most common
corporate actions qualify as non-routine items under Rule 17Ad-1,
including transfers ``in connection with a reorganization, tender
offer, exchange, redemption, or liquidation,'' \350\ the general three
business day deadline for turnaround of routine items under Rule 17Ad-2
may not apply. However, if a transfer agent makes a determination that
a transfer does fall within Rule 17Ad-1(i)(5) and therefore is non-
routine, Rule 17Ad-6(a)(11) requires the transfer agent to maintain
records documenting the basis for this determination.\351\ Other
aspects of the processing of the corporate action may cause the
corporate action to be classified as non-routine as well. For example,
if a transfer associated with a corporate action involves a need to
review ``explanations, or opinions of counsel before transfer may be
effected,'' requires ``review of supporting documentation'' other than
routine documentation, or includes a warrant, right, or convertible
security ``presented for exercise or conversion'' or ``presented for
transfer . . . within five business days'' before expiry it will be
considered non-routine under Rule 17Ad-1.\352\
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    \350\ Exchange Act Rule 17Ad-1(i)(5), 17 CFR 240.17Ad-1(i)(5).
    \351\ A large portion of specific records that transfer agents
are required to maintain under Rule 17Ad-6 and to retain for
different periods of time under Rule 17Ad-7 relate to: (i) The
classification of an item as routine or non-routine; (ii) tracking
the compliance of the transfer agent with the performance standards
for turnaround of routine items under Rule 17Ad-2(a); and (iii) the
performance standards for processing of all items pursuant to Rule
17Ad-2(b).
    \352\ Exchange Act Rule 17Ad-1(i), 17 CFR 17Ad-1(i).
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    Voluntary corporate actions, which permit securityholders to choose
among different options, may result in the need for additional tasks
and systems for transfer agents to process them. For example, in
addition to the ordinary recordkeeping tasks, the transfer agent may be
responsible for monitoring whether elections have been made by
deadlines and for tracking such elections.
    In addition to the examples discussed above, transfer agent roles
in connection with corporate actions may also include serving as: (i)
Tender agent, when the transfer agent collects shares surrendered from
securityholders and makes payments for the shares at a predetermined
price; (ii) exchange agent, when the transfer agent collects shares
surrendered from securityholders and issues, registers, and/or
distributes shares of the bidding company's securities as compensation
for tendered securities of the subject company; (iii) subscription
agent, when the transfer agent invites existing equity securityholders
of an issuer to subscribe to a new issuance of additional debt or
equity of the issuer; (iv) conversion agent, for example when the
transfer agent converts debt securities into equity securities; and (v)
escrow agent, when the transfer agent holds an asset on behalf of one
party for delivery to another party upon specified conditions or
events.
    Finally, transfer agents providing corporate action services may be
subject to Rule 17Ad-12 and 17Ad-13, regarding safeguarding
requirements for funds and securities and an annual audit of internal
control of safeguarding procedures. As discussed above, corporate
actions may involve transfer agents making distributions on behalf of
issuers to securityholders of cash and stock dividends as well as
principal and interest payments on debt securities. Rule 17Ad-12(a)
requires that:

    Any registered transfer agent that has custody or possession of
any funds or securities related to its transfer agent activities
shall assure that: (1) All such securities are held in safekeeping
and are handled, in light of all facts and circumstances, in a
manner reasonably free from risk of theft, loss or destruction . .
.; and (2) All such funds are protected, in light of all facts and
circumstances, against misuse.

    Rule 17Ad-13 requires every registered transfer agent to file an
annual report with the Commission and the transfer agent's ARA prepared
by an independent accountant concerning the transfer agent's system of
internal accounting controls and procedures for, among other things,
safeguarding of securities and funds. Specifically, Rule 17Ad-
13(a)(2)(iii) requires the report to cover ``[t]ransferring record
ownership as a result of corporate actions'' and Rule 17Ad-13(a)(2)(iv)
requires the report to cover ``[d]ividend disbursement or interest
paying-agent activities.''

B. Annual Meeting, Proxy-Related Services, and Securityholder Services
and Communications

    One of the key rights of securityholders is the right to vote their
shares on important matters that affect the companies they own.
Pursuant to state corporate law, registered securityholders may either
attend a meeting to vote shares in person or authorize an agent to act
as their ``proxy'' at the meeting to vote their shares pursuant to
their voting instructions.\353\ Because most securityholders do not
physically attend public company securityholder meetings, the corporate
proxy is the principal means by which they exercise their voting
rights.
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    \353\ See Del. Code Ann. tit. 8, Sec.  212(b), (c). A full
discussion of the proxy system is beyond the scope. For more
information on the proxy system, see Proxy Concept Release, supra
note 112.
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    The process in the United States for distributing proxy materials
and soliciting, tabulating, and verifying votes by securityholders is
complex, especially with respect to beneficial securityholders.\354\
Most corporate issuers and securities intermediaries such as banks and
brokers rely on a proxy service firm to perform these functions, which
may include distributing and forwarding the proxy materials and
collecting and tabulating voting instructions. Alternatively, some

issuers choose to engage their transfer agents for certain parts of the
proxy distribution process, such as printing and distributing proxy
materials either directly to registered securityholders or to
intermediaries, which will then distribute them to beneficial owners
either through the mail or electronically.\355\ Providing these
services may be a natural extension of a transfer agent's core
functions because most transfer agents will already possess and
maintain the master securityholder file listing the issuer's registered
securityholders, will have the infrastructure in place to communicate
with registered securityholders, and will be in a position to reconcile
the identity of registered voters and the number of votes against the
official records of the issuer.\356\ Typical transfer agent proxy
services might include mailing or electronically transmitting notices
of meetings,\357\ proxy statements, and proxy cards \358\ to
securityholders.
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    \354\ Beneficial owners holding securities in street name are
not technically entitled to vote shares or grant proxy authority.
Rather, the voting rights reside with Cede & Co. as the record owner
of all street name shares. However, because Cede & Co.'s role is
only that of nominee for DTC as custodian and it has no beneficial
interest in the shares, mechanisms have been developed in order to
pass the legal rights it holds as the record owner to the beneficial
owners, enabling them to vote. For a more comprehensive discussion
of these and other issues relating to the U.S. proxy and indirect
holding systems, see Proxy Concept Release, supra note 112.
    \355\ See, e.g., Broadridge Annual Report 2015 (2015), available
at http://www.broadridge-ir.com/~/media/Files/B/Broadridge-IR/
annual-reports/ar-2015.pdf.
    \356\ See Proxy Concept Release, supra note 112. See Proxy
Tabulation and Solicitation, AST, http://www.amstock.com/corporate/corporate_proxy.asp (last visited November 20, 2015).
    \357\ See, e.g., Del. Code Ann. tit. 8, Sec.  222 (2001). See
also Del. Code Ann. tit. 8, Sec.  232 (2001).
    \358\ In cases where the issuer is relying upon the notice and
access model of proxy statement distribution, the proxy card must be
mailed even if the proxy statement is not mailed by the issuer. See
Final Rule: Internet Availability of Proxy Materials, Exchange Act
Release No. 55146, 10 (Jan. 22, 2007), 72 FR 4148 (Jan. 29, 2007).
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    In addition, under many state statutes, an issuer must appoint a
vote tabulator (sometimes referred to as the ``inspector of elections''
or ``proxy tabulator'') to collect and tabulate the proxy votes as well
as ballot votes cast in person by registered owners at a securityholder
meeting.\359\ As with proxy distribution services, some issuers hire
their transfer agent to create sophisticated voting platforms for
securityholders or to act as the vote tabulator.\360\ The vote
tabulator is ultimately responsible for determining whether shares are
represented at the meeting, the validity of proxies received, and
tallying the votes.\361\ The tabulator must determine that the correct
number of votes has been submitted by each registered owner and
determine that proxies submitted by securities intermediaries that are
not registered owners are reconciled with DTC's securities position
listing for that intermediary (i.e., determining that the number of
nominee shares voted equals the number of shares that DTC indicates are
held in nominee name).\362\ Although the Commission does regulate
transfer agents, which often serve as vote tabulators, it does not
regulate the function of tabulating proxies by transfer agents.
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    \359\ See, e.g., Del. Code Ann. tit. 8, Sec.  231(a)-(c)(2001)
(inspectors must be appointed in advance of all stockholder meetings
of publicly held corporations and have responsibility for
ascertaining the number of shares outstanding and the voting power
of each, determining the shares represented at the meeting and the
validity of proxies and ballots, counting all votes and ballots,
creating and retaining a record of the disposition of any challenges
made to any determination of the inspectors, and certifying their
determination of the number of shares represented at the meeting and
the count of all votes and ballots).
    \360\ Sometimes the issuer will hire an independent third party
other than the transfer agent to perform the proxy tabulation
function, such as to certify important votes. In such cases, the
issuer or its transfer agent typically will provide the third party
vote tabulator with the list of record owners so the vote tabulator
can make this determination. Additionally, in contested votes, the
issuer will commonly retain an independent inspector to count the
proxies. See, e.g., www.ivsassociates.com/html/index2.htm.
    \361\ See, e.g., Del. Code Ann. tit. 8, Sec.  231(2001); see
also Marcel Kahan & Edward B. Rock, The Hanging Chads of Corporate
Voting, 96 Geo. L.J. 1227, 1235 (2008) (``Where more than one valid
proxy is given for a share, the later proxy revokes the earlier
proxy. Determining the validity of proxies and the tally of votes is
the responsibility of the inspector, appointed by the
corporation.''), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1007065.
    \362\ See Proxy Concept Release, supra note 112. See, e.g.,
http://www.amstock.com/corporate/corporate_proxy.asp.
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    All transfer agents also provide some level of securityholder
communications services. The level of services may depend on the type
or size of the issuer, but at a minimum, most transfer agents
facilitate the mailing of quarterly and annual statements with details
of holdings, transaction confirmations, and letters or communications
confirming other transactions, such as address-change confirmations.
Many transfer agents also provide tax reporting services, including
sending tax forms such as W-9, W-8BEN, 1099-DIV, and 1099-B.
    Most transfer agents also receive and respond to inquiries and
requests by securityholders and non-securityholders,\363\ often through
interactive Web sites, call centers, and the like. Requests may involve
a transfer (for example, a gift of fund shares from one family member
to another) or a change in the securityholder's account, such as an
address change or different election regarding dividend reinvestment.
For transfer agents to open-end mutual funds, transfers may involve a
purchase (i.e., a ``subscription'') or sale (i.e., a ``redemption'') of
the fund's shares.\364\ Transfer agents may receive inquiries as well,
which may not require processing a transaction or account change, but
may involve merely answering questions about the securityholder's
account or regarding the issuer generally.\365\ Requests and inquiries
are transmitted to transfer agents through various methods, including
by telephone, mail, facsimile, email, internet, mobile communication
device, and in-person. The predominance of telephone and other forms of
electronic communication as favored methods for securityholders to
communicate with issuers and their transfer agents, including the use
of standardized protocols over the internet, means that managing
sizable call centers and other customer service departments, with many
representatives fielding calls and other message-traffic, has become a
critical aspect of the transfer agent-issuer relationship.
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    \363\ As discussed supra Section IV.A, several Commission rules
address securityholder inquiries. See Exchange Act Rule 17Ad-5, 17
CFR 240.17Ad-5 (written inquiries and requests); Exchange Act Rules
17Ad-6, 7, 17 U.S.C. 240.17Ad-6, 7 (recordkeeping and retention
requirements regarding inquiries and requests).
    \364\ For additional discussion of ``transfers,'' see supra
Section IV.A.2.
    \365\ Inquiries about the securityholder's account may relate,
for example, to matters such as dividend reinvestment or other
account options.
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    One aspect of these securityholder services is lost certificate
replacement. If a securityholder loses a certificate, the old
certificate must be cancelled and new shares issued, either in
certificated or book-entry form. Transfer agents facilitate this
process by processing the request and replacing the lost or missing
certificate. Generally, the securityholder will be required to fill out
a declaration, affidavit, or other form with identifying information
and a description of the circumstances giving rise to the loss and pay
a fee to the transfer agent for processing the request. Most transfer
agents will also require a surety bond to indemnify the issuer and
transfer agent against any potential losses in connection with the
missing or replacement certificate in the event it is later presented
for transfer or conversion. The transfer agent will then report the
lost or missing certificate to SIC pursuant to Rule 17f-1, as described
above in Section II.B.

C. Regulatory Compliance and Reporting

    Although not addressed directly in the transfer agent rules, most
transfer agents today provide assistance with issuers' obligations to
comply with various state and federal laws, including the federal
securities laws, because many issuer compliance obligations fall
directly into areas in which the transfer

agent is already providing services to the issuer. For example,
transfer agents may use their mailing and fulfillment services to help
issuers meet their obligations to deliver certain documents to
securityholders.\366\ Transfer agents may also use their existing
recordkeeping capabilities to help issuers meet obligations regarding
disclosure of securityholders owning more than a certain threshold of
ownership.\367\ Further, investment company issuers subject to anti-
money laundering responsibilities under federal law may rely on
transfer agents to assist their compliance since this function is
closely related to the new account processing services and
securityholder recordkeeping services transfer agents provide to these
issuers.
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    \366\ See, e.g., Exchange Act Rule 14c-3, 17 CFR 240.14c-3
(annual report to be furnished securityholders); Investment Company
Act Rule 30e-1, 17 CFR 270.30e-1 (reports to stockholders of
management companies); Investment Company Act Rule 30e-2, 17 CFR
270.30e-2 (reports to shareholders of unit investment trusts).
    \367\ See, e.g., SEC Form N-1A, Item 18 (Control Persons and
Principal Holders of Securities), SEC Form 10-K, Item 12 (Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters).
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    Finally, transfer agents spend a much greater amount of time and
resources on assisting issuers with their escheatment obligations under
state law than they have done historically. Escheatment is the process
of transferring abandoned property to the state or territory. All 50
states, Washington, DC, Puerto Rico, and all U.S. territories have
abandoned property laws which apply to any type of holding, including
stock and associated payments made to securityholders, such as dividend
payments. When a property owner fails to demonstrate ownership of
property--for example, by not cashing dividend checks or responding to
mailings--for a period of time, that property is deemed abandoned and
is turned over to the state. The state then converts the property to
cash within 30 days to two years. A securityholder who is holding
securities that have been escheated will only be able to reclaim the
sale price the state received, without interest, not the securities
themselves.\368\
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    \368\ See, e.g., Cal. Civ. Proc. Code Sec. Sec.  1500 et. seq.
(California's requirements); Tex. Prop. Code Ann. Sec. Sec.  72-76
(Texas' requirements). We note also that Rule 17Ad-17 requires
transfer agents to make certain efforts to locate lost
securityholders.
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    Pursuant to these abandoned property laws, issuers, through their
transfer agents, are required to report when property is deemed to be