DGL REVISED 2020 PRA 17Ad-3(b) justification 2017

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for
Rule 17Ad-3(b)
(OMB Control No. 3235-0473)
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 Acts Amendments of 1975.
To facilitate the establishment of a national system for the prompt and accurate clearance
and settlement of securities transactions, Congress established a scheme of regulation to
ensure that the transfer agents who process securities meet the statutory goal. Those
amendments to the Securities Exchange Act of 1934 (“Act”) and the Commission’s rules
thereunder require transfer agents to meet minimum performance and recordkeeping
standards designed to protect the public interest and investors.
Section 17A(d)(1)(A) of the Act, in general, prohibits any registered agent from
engaging in any transfer agent activity in contravention of such rules and regulations as
the Commission may prescribe as necessary or appropriate in the public interest, for the
protection of investors, or otherwise in furtherance of the purposes of the Act. In
addition, subsections 17(a)(1) and (3) of the Act require every registered transfer agent to
file reports as the Commission or other appropriate regulatory agencies (“ARAs”)
prescribe by rule as necessary or appropriate in furtherance of the purposes of the Act.
In order to provide an early warning system designed to alert the ARA that a
registered transfer agent is not meeting the performance standards set forth in the
Commission’s rules, the Commission, pursuant to sections 2, 17, 17A, and 23(a) of the
Act, 15 U.S.C. 78b, 78q, 78q-1, and 78w(a), adopted rules 17Ad-2(c), (d), and (h) on
June 16, 1978. Rules 17Ad-2(c), (d), and (h) enable those agencies to take timely
preventive and remedial measures to protect the public interest and investors. Similarly,
the Commission also adopted Rule 17Ad-3(b) to alert issuers when their transfer agents
fail to meet the minimum performance standards set forth in Rule 17Ad-3(b).
Rule 17Ad-3(b) requires a registered transfer agent to send a copy of the notice
required pursuant to Rule 17Ad-2(c), (d), and (h) to all the issuers for whom that transfer
agent acts when for two consecutive months the transfer agent has failed to turnaround at
least 75% of all routine items in accordance with the requirements of Rule 17Ad-2(a) or
to process at least 75% of all items in accordance with the requirements of Rule 17Ad2(b). The transfer agent is required to send the notice within twenty business days after
the close of the second month to the chief executive officer of each issuer for which such
registered transfer agent acts.

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2.

Purpose and Use of Information Collection

The issuer uses the information contained in the notices: (1) as an early warning
of the transfer agent’s non-compliance with the Commission’s minimum performance
standards regarding registered transfer agents; and (2) to become aware of certain
problems and poor performances with respect to the transfer agents that are servicing the
issuer’s issues. If the issuer does not receive notice of a registered transfer agent’s failure
to comply with the Commission’s minimum performance standards, then the issuer will
be unable to take remedial action to correct the problem or to find another registered
transfer agent. The Commission may also use this information in its examination and
inspection program.
3.

Consideration Given to Information Technology

Given the low volume of notices sent to issuers, the Commission does not
contemplate specifying the use of any particular electronic system.
4.

Duplication

There is no duplication of information.
5.

Effect on Small Entities

For purposes of the Regulatory Flexibility Act, a transfer agent is considered a
small business or entity if it: (i) receives less than 500 items for transfer and less than 500
items for processing during the preceding six months; (ii) transfers items only of issuers
that would be deemed small businesses or small organizations; (iii) maintains master
shareholder files that in the aggregate contained less than 1,000 shareholder accounts or
was the named transfer agent for less than 1,000 shareholder accounts at all times during
the preceding fiscal year; and (iv) is not affiliated with any person that is not a small
business or small organization. These transfer agents are exempt from the provisions of
Rule 17Ad-3(b).
6.

Consequences of Not Conducting Collection

If the information were not collected or collected less frequently, effective
regulation of transfer agent conduct and activity would be less efficient. Specifically, the
transfer agent rules and regulations are designed to assure the continuous prompt
processing of securities presented for transfer. If this information is provided less often,
issuers could not properly assure that transfer agents promptly process all securities
presented for transfer.

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7.

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

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

Consultations Outside the Agency

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

Payment or Gift

Not applicable. There is no payment or gift provided to respondents.
10.

Confidentiality

There is nothing in Rule 17Ad-3(b) that provides that the notice required to be
sent to the registered transfer agent’s issuers shall be kept confidential by issuers.
11.

Sensitive Questions

The SEC does not collect, store, or use this information. The agency has
determined that a system of records notice and privacy impact assessment are not
required in connection with the collection of information.
12.

Information Collection Burden

The estimated annual burden to respondents is minimal. The Commission
receives approximately two Notices of Non-Compliance annually from registered
transfer agents pursuant to Rule 17Ad-2(c), (d), and (h). Pursuant to Rule 17Ad-3(b), a
transfer agent that has already filed a Notice of Non-Compliance with the Commission
pursuant to Rule 17Ad-2 will only be required to send a copy of that notice to issuers it
services when that transfer agent fails to turnaround 75% of all routine items or to
process 75% of all items for two consecutive months. The Commission estimates that of
the transfer agents that file the Notice of Non-Compliance, only one transfer agent
annually will meet the requirements of Rule 17Ad-3(b), and such transfer agent will
simply send its issuer-clients a copy of a notice that has already been processed by the
Commission under Rule 17Ad-2(c) or (d). The Commission estimates that the burden of
doing so will be approximately 4 hours per year. The total estimated burden associated
with Rule 17Ad-3(b) is thus approximately 4 hours per year.
While not a cost burden under Item 13, the Commission staff estimates that the
internal compliance cost for the transfer agent to comply with this third party disclosure

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requirement will be approximately $1,128 per year (4 hours x $283 per hour = $1,128). 1
Therefore, the total annual internal cost of compliance associated with Rule 17Ad-3(b) is
approximately $1,128.
Rule

Burden
Type

Third Party
Disclosure
Total Aggregate Burden
Rule 17Ad-3(b)

13.

Number of
Respondents

1

Number of
Annual
Reponses
Per
Respondent
1

Time Per
Response
(Hours)

Total Burden Per
Burden Type (Hours)

4

4
4

Costs to Respondents

Not applicable: (a) it is not anticipated that respondents will have to incur any
capital and start up cost to comply with the rule, and (b) it is not anticipated that the
respondents will have to incur any additional operational or maintenance cost (other than
provided for in item no. 12) to comply with the rule.
14.

Cost to Federal Government

Not applicable. The notice requirement under the rule is a third party notice.
15.

Changes in Burden

None
16.

Information Collections Planned for Statistical Purposes

Not applicable. The information collection is not used for statistical purposes.
17.

Approval to Omit OMB Expiration Date

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

Exceptions to Certification for Paperwork Reduction Act Submissions

This collection complies with the requirements in 5 CFR 1320.9.
B.

Collection of Information Employing Statistical Methods
This collection does not involve statistical methods.

The estimated hourly wages used in this analysis were derived from reports prepared by the
Securities Industry and Financial Markets Association. See Securities Industry and Financial Markets
Association, Office Salaries in the Securities Industry – 2013 (2013), modified to account for an 1800-hour
work year and multiplied by 5.35 to account for bonuses, firm size, employee benefits and overhead.

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