PRARule17Ad-2(c)(d)(h)(Supporting_Stmt Final 2012

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for
“Rule 17Ad-2(c), (d), and (h)”

A.

Justification
(1) Necessity of Information Collection

As a result of the "paperwork crisis" that occurred in the late 1960's, during which
the number of securities transactions exceeded the securities industry's capacity to
process those transactions, Congress enacted the Securities Act Amendments of 1975. In
order to establish a national system for the prompt and accurate clearance and settlement
of securities transactions, Congress provided for a scheme of regulation with respect to
the business of being a transfer agent. Those amendments to the Securities Act of 1934
(the "Act") require transfer agents to meet minimum performance and recordkeeping
standards as established by the Commission, in furtherance of the purposes of the Act and
generally, to protect investors.
Transfer agents play an integral role in the national system for the clearance and
settlement of securities transactions. Transfer agents cancel certificates presented for
transfer, issue new certificates to the transferee and record the change of record
ownership of securities on the issuer's securityholder records. They also prepare,
maintain and certify securityholder records, disburse dividend and interest payments, and
mail security-owner communications such as proxy materials and annual reports to
shareholders.
Because transfer agents are such an integral component of the securities handling
process, to the extent transfer agents fail to perform their activities promptly, accurately
and safely, the entire clearance, settlement, and transfer process suffers. Moreover,
substandard performance by transfer agents can affect the accuracy of an issuer's
security-owner records and, thus interrupt the channels of communication between
issuers and shareowners. Thus, substandard performance by transfer agents can
adversely affect issuers, broker-dealers, banks, other financial intermediaries, the
investing public, and the securities markets.
Section 17A(d)(1)(A) of the Act generally prohibits any registered transfer agent
from engaging in any transfer agent activity in contravention of Commission rules. In
addition, Sections 17(a)(1) and (3) of the Act require every registered transfer agent to
file reports as the Commission or other appropriate regulatory agency ("ARA") 1 require.

1

Section 3(a)(B) of the Act defines the term "ARA" as applied to transfer agents.

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The Commission promulgated Rules 17Ad-2(c), (d), and (h) to provide an early
warning system to alert the ARA when a registered transfer agent is not meeting the
performance standards as set forth in the Commission's rules. This rule was adopted
pursuant to authority in Sections 2, 17, 17A, and 23(a) of the Act (15 USC sec. 78b, 78q1, and 78w(a)). Rules 17Ad-2(c), (d), and (h) thus enable the ARAs to take timely
preventive and remedial action to protect the interests of the public and of investors.
Under Rule 17Ad-2(c), a registered transfer agent must file a notice within 10
days after the end of any month in which it fails to meet the minimum performance
standards set forth in rule 17Ad-2(a). Generally, the notice must include: (a) specific
quantitative data to enable the ARA to gauge the severity of the transfer agent's failure
to comply with the applicable performance standard; (b) the reasons for the noncompliance; and (c) the steps that have been, are being, or will be taken by the transfer
agent to prevent similar failures from recurring.
Similarly, when a registered transfer agent acting as an outside registrar fails to
meet the minimum performance standards of Rule 17Ad-2(b), it must file a notice, as
outlined above, with the Commission, and with the various ARAs, when appropriate.
(2)

Purpose and use of the Information Collection

The Commission utilizes the information contained in the notices to: (a) provide
an early warning to the Commission, the ARA (if not the Commission), and the
registered transfer agent itself, of its non-compliance with the minimum performance
standards; and (b) assure that every registered transfer agent performs its functions
promptly and accurately, and in accordance with the statutory goal.
(3)

Consideration Given to Information Technology

The information required by the rule to be reported to the Commission, or when
appropriate, the ARAs, does not constitute a significant burden to the registered transfer
agents covered by the rule. Thus, improved technology would not reduce the burden.
(4)

Duplication

Not applicable; no duplication exists with respect to the information to be
submitted under the rule.
(5)

Effect on Small Entities

For purposes of the Regulatory Flexibility Act, a transfer agent is considered a
small business or entity if it received fewer than 500 items for transfer and fewer than
500 items for processing during the six month period preceding the time when the
determination is made. See Exchange Act Rule 0.10(h), 17 CFR 240.0.10(h). Transfer
agents that are considered "small businesses" by this test are exempt from the provisions
of Rule 17Ad-2(c), (d), and (h).

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(6)

Consequences of Not Conducting Collection

The transfer agent rules are designed to assure the continuous, prompt processing
of securities presented for transfer. If this information was provided less frequently, the
Commission and the ARAs (when appropriate) would not be able to effectively regulate
transfer agent conduct, and thus would not be able to fully comply with their statutory
duties, as outlined above.
(7)

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

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

Consultations Outside Agency

The required Federal Register notice with a 60-day comment period soliciting
comments on this collection of information was published. No public comments were
received.
(9)

Payment or Gift

Not applicable.
(10)

Confidentiality

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

Sensitive Questions

No questions of a sensitive nature are asked.
(12)

Burden of Information Collection

The Commission receives approximately five notices per year from each of the
361 registered transfer agents currently subject to these rules. The staff's experience
indicates that approximately one-half hour is needed per response because most of the
required information is readily available and because the information only needs to be
presented in summary fashion. 2 Consequently, the burden placed upon transfer agents is
minimal, averaging two and a half hours per year per transfer agent for a total industrywide reporting burden of 902.5 hours per year (361 x 2.5).

2

Since the Commission has not adopted an official form for this purpose, each
registered transfer agent required to file notices may submit a statement on its
own letterhead.

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(13)

Costs to Respondents

Not Applicable.
(14)

Costs to Federal Government

On an annual basis, the Commission receives an average of 5 notices from each of
the 361 registered transfer agents currently subject to Rule 17Ad-2(c), (d), and (h). The
Commission's staff estimates that the total cost to the Commission and the ARAs of
reviewing those notices and taking appropriate action thereon is approximately $360.
This figure is based on computation of the value of staff time devoted to reviewing
notices and taking appropriate remedial action, and based on a calculation of the related
overhead, which is valued at 35% of the value of staff time. This estimate was computed
according to the guidelines set forth in GSA, Guide to Estimating Reporting Costs
(1973).
(15)

Changes in Burden

The changes in burden are due to a prior misunderstanding in computing the
burden which has been corrected in this and related documents.
(16)

Information Collection Planned for Statistical Purposes

Not applicable.
(17)

Approval to Omit OMB Expiration Date

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

Exceptions to Certifications

Not applicable. This collection complies with the requirements in 5 CFR 1320.9.
B.

Collection of Information Employing Statistical Methods

No statistical methods are employed in connection with the collections of
information.