Section 3(a)(25) of the Exchange Act leaves two kinds of entity outside the transfer agent definition even when they perform transfer agent functions. Which two?

A bank acting solely for the securities of its own parent holding company, and a broker-dealer acting solely for those securities issues that it has itself underwritten

An insurer or separate account acting solely for variable annuity or life contracts it issues, and a registered clearing agency acting solely for options it issues

A registered fund's adviser keeping solely the fund's shareholder records, and a securities depository recording transfers solely among its own participants

A municipal issuer's paying agent acting solely for that issuer's bond issues, and a national securities exchange acting solely for its listed shares

A national bank registered as a transfer agent, whose appropriate regulatory agency is the Comptroller of the Currency, tells an issuer that the SEC's Rule 17Ad-2 turnaround standard does not bind it because the SEC is not its regulator. Is the bank right?

Yes, unless the issuer it serves has a class of securities registered under Section 12, which brings the bank under the SEC's rules

Yes, because a bank transfer agent answers to its own regulator's rules alone, the SEC's Rules 17Ad reaching non-bank transfer agents

No, because Section 17A(d)(1) binds a registered transfer agent to the SEC's rules as well as to its own regulator's safeguarding rules

No, but only because the Comptroller has formally adopted the SEC's turnaround rule as part of its own rules for national banks

A paying agent sends a holder a $140 dividend check. The check is not returned as undeliverable, but the holder has not cashed it by the time the next regular check is sent. What does Rule 17Ad-17 require the paying agent to do for that holder?

Send at least one written notice that a check sent to the holder has not been negotiated, no later than seven months after sending it

Escheat the check amount at once to the state of the holder's last known address, the holder then being treated as having abandoned the payment

Stop all further payments to the holder until the holder confirms in writing that the address of record is still the right one

Send a written notice within thirty days, after which the unpaid amount is treated as abandoned property under the rule itself

A transfer agent whose appropriate regulatory agency is the SEC files Form TA-1 and then, before the registration has become effective, files an amendment to it. If the SEC takes no other action, when does the registration become effective?

On the thirtieth day after the original filing, the amendment leaving the effective date unchanged

On the thirtieth day after the amendment is filed, the amendment postponing the original effective date

Forty-five days after the SEC received the original application, the statute's period governing it

On the day the SEC issues an order declaring the amended application effective, and not before then

Some time after its registration took effect, information that a transfer agent reported on Form TA-1 becomes inaccurate. What does Rule 17Ac2-1 require of it?

A correcting amendment filed within ten business days, failing which its registration is suspended

A correction in its next annual report on Form TA-2, which updates the registration information each year

A correcting amendment to its Form TA-1, filed within sixty days after the information became inaccurate

A new Form TA-1 application, filed together with a Form TA-W withdrawing its existing registration

While it decides whether to deny a transfer agent's application for registration, for how long may the appropriate regulatory agency postpone the registration's effective date under Section 17A(c)(4)(A)?

Up to fifteen days by order, with no power to postpone it any further whatever a hearing might later disclose about the applicant

Up to twelve months by order, the same limit that the statute sets for suspending an existing registration

For as long as it needs by order without a hearing, since a registration not yet effective confers no rights

Up to fifteen days by order, a longer postponement until its final decision needing notice and an opportunity for hearing first

The Federal Reserve Board, as the regulator of a bank transfer agent, bars one of its employees from association with any transfer agent. He later wants to join a commercial transfer agent registered with the SEC. Under Section 17A(c)(4)(C), whose consent does he need?

Both the Federal Reserve Board, which entered the bar, and the SEC, as the regulator of the transfer agent he wants to join

The Federal Reserve Board alone, as the agency that entered the bar, whichever regulator supervises the new employer

The SEC alone, as the regulator of the transfer agent he now wants to join, since the earlier bar reached bank transfer agents and no others

Neither agency, since a bar entered by a bank regulator does not reach a transfer agent supervised by the SEC

After the SEC issues an order instituting proceedings against a transfer agent under Section 17A(c)(3), the transfer agent files Form TA-W to withdraw its registration. Under Rule 17Ac3-1, when does the withdrawal take effect?

On the sixtieth day after filing, as for any notice of withdrawal, the pending proceedings then lapsing without any order

Only when the SEC decides, and on any terms it finds necessary to protect investors or the public interest

Immediately on filing, since a registrant may always withdraw before any sanction has been imposed on it

On the sixtieth day after the proceedings end, whatever their outcome and without any terms being added

Two named transfer agents file Form TA-2. One engaged a service company to perform all of its transfer agent functions during the year; the other engaged a service company for some of them. How do their filings differ under Rule 17Ac2-2?

Both complete the whole form, each reporting the service company's work in full as though it had performed that work itself

The first need not file at all for the year; the second completes the whole form, reporting the service company's work as its own

The first answers only the form's first three questions; the second completes the whole form, entering zero for the outsourced functions

The first completes the whole form on the service company's behalf; the second answers only the form's first three questions

Which of these items presented to a transfer agent is non-routine under Rule 17Ad-1?

A certificate presented for transfer to a new owner, needing no further documents

A certificate of an issue whose registered public offering ended two months ago

An instruction to transfer part of the shares the agent holds in the presentor's name

A convertible security presented to be converted into the issuer's common stock

In a month a transfer agent turns around 93 percent of its routine items within three business days. Under Rule 17Ad-2, what is required for the routine items that missed the three days and for its non-routine items?

The late routine items must still be turned around promptly, and non-routine items need diligent, continuous attention and completion as soon as possible

Neither group needs further attention that month, because the 90 percent standard has been met in full for every item received in the month

The late routine items are carried into the next month's count, and the non-routine items must be turned around within the same three business days

The late routine items must be reported in a failure notice, and the non-routine items may wait until every routine item has been turned around

As part of their 90 percent standards, an outside registrar and a transfer agent each receive an item at 3 p.m. on a business day. How does the time allowed the registrar compare with the time allowed the transfer agent?

Both have three business days, counted from noon on the next business day, because one standard governs registrars and transfer agents alike

The registrar must process it by noon on the next business day; the transfer agent has three business days from noon on the next business day

The registrar must process it by the opening of business the next day; the transfer agent has three business days counted from 3 p.m. that day

The registrar has five business days for an item received after noon; the transfer agent has three business days from noon on the next day

A transfer agent has had to file a turnaround failure notice for each of three consecutive months. What does Rule 17Ad-3 then bar it from doing, and for how long?

Taking on any new issue for a fixed twelve months, although it remains free to add new functions for the issues it already serves

Transferring any securities at all, until its regulator lifts a suspension imposed after giving notice and an opportunity for hearing

Taking on any new issue, or a new function for an issue it serves, until it completes three successive months needing no failure notice

Charging fees for any transfer it makes, until its next annual accountant's report on internal control shows no material inadequacy

For two consecutive months a transfer agent turns around fewer than 75 percent of its routine items within the required time. Besides its failure notices to regulators, what must it do to inform the issuers it serves under Rule 17Ad-3(b)?

Post a statement of its failure on EDGAR, where each issuer is deemed to receive it on the day it is filed there

Mail a copy of its failure notice to every registered holder of each issuer, within ten business days after the month ends

Notify the qualified registered securities depository, which passes the notice on to every issuer within 24 hours

Send the chief executive officer of each issuer a copy of its failure notice for the second month, within twenty business days

When does a transfer agent qualify as an exempt transfer agent under Rule 17Ad-4?

When, in any six consecutive months, it receives fewer than 500 items for transfer and fewer than 500 for processing

When, in a calendar year, it receives fewer than 1,000 items for transfer and keeps no more than 1,000 accounts

When it acts solely for its own securities and for those of its parent or of subsidiaries it owns 51 percent of

When, in any six consecutive months, its transfer and processing work together comes to under 500 items

A transfer agent that has been exempt under Rule 17Ad-4 finds from its monthly calculation that it no longer qualifies. When can it next claim the exemption?

As soon as its volume again falls below the exemption threshold in any later month's six-month calculation

Only after it has run its operations under the full turnaround and related rules for six consecutive months

At the start of the next calendar year, when its annual Form TA-2 certifies its volumes for the prior year

Never again, since a transfer agent that has lost the exemption is barred from claiming it a second time

A holder writes to a transfer agent about the status of a certificate she presented for transfer last month, identifying the issue, the number of shares, the date and the registration. Two business days later the agent mails her the new certificate. What further response does Rule 17Ad-5 require?

A transcript of her account within twenty business days, showing both the cancelled and the new certificate

A written response within five business days giving the date and manner in which the certificate was sent

None further, because mailing the new certificate within five business days of the inquiry satisfies the rule

A written confirmation within ten business days that the agent had possession of the presented certificate

A holder writes to a transfer agent, with sufficient detail, about a dividend she says was underpaid on a payment date eight months earlier. How does Rule 17Ad-5 classify the claim and time the response?

As an aged claim, to be answered within ten business days

As a current claim, to be answered within ten business days

As a current claim, to be answered within twenty business days

As an aged claim, to be answered within twenty business days

A security presented for transfer carries certificate detail that differs from the detail on the master securityholder file, and the difference cannot be resolved at once. How does Rule 17Ad-10 have the recordkeeping transfer agent post the transfer?

It posts the credit for the new holder to the master file and keeps the debit in a subsidiary file until the difference is resolved

It posts neither entry, keeping the whole transfer in a subsidiary file until the difference has been resolved

It posts the debit for the old holder to the master file and keeps the credit for the new holder in a subsidiary file until it is resolved

It posts both entries to the master file and notes the difference in the issue's control book until it is resolved

The control book is the record of the total number of shares or principal amount an issuer has authorized and issued. Under Rule 17Ad-10, what must a recordkeeping transfer agent have before it changes the control book?

A resolution of the issuer's shareholders approving the change

Prior approval from its appropriate regulatory agency in writing

An opinion of the issuer's counsel filed with the depository

A record difference arises when the master securityholder file does not agree with the control book, or with a presented certificate, and cannot be resolved at once. Under Rule 17Ad-11, when does it become an aged record difference?

When it has existed for more than six calendar months

When it has existed for more than five business days

When it has existed for more than sixty calendar days

When it has existed for more than thirty calendar days

In deciding which particular safeguards Rule 17Ad-12 calls for over the funds and securities a transfer agent holds, which two factors does the rule name as relevant?

The size of the transfer agent's net capital and the number of issues for which it currently acts

The market value of the securities it holds and the credit ratings of the issuers that it serves

The number of items it receives each month and whether it qualifies as an exempt transfer agent

A transfer agent's annual accountant's report under Rule 17Ad-13 describes a material inadequacy in its internal accounting control. What must the transfer agent then do?

Commission a second accountant's study within 90 days, the first report being held back from filing until the second study confirms its findings

Notify the SEC and its regulator in writing, within 60 calendar days of receiving the report, of the corrective action taken or proposed

Correct the inadequacy before filing its next Form TA-2, whose answers must then state that the defect was fully resolved

Nothing beyond filing the report, because the accountant's description itself serves as notice to the SEC and to its regulator

A transfer agent's written standards say it will not accept signature guarantees from any credit union, whatever the credit union's financial condition. How does Rule 17Ad-15 treat that standard?

As permissible, provided the agent sends a copy of its written standards to any credit union that asks for them within three days

As permissible, since each transfer agent alone decides which classes of eligible guarantor institution it will accept

As impermissible, since rejecting a guarantee solely because the guarantor is a particular type of eligible institution is barred

As impermissible, unless the agent first gives each credit union ninety days' written notice before it begins to apply the standard

Two broker-dealers guarantee signatures on transfer requests. Neither is a member of a clearing corporation; one holds net capital of $250,000 and the other $60,000. How may a transfer agent treat their guarantees under Rule 17Ad-15's exclusions?

It may reject both firms' guarantees, but only after giving each of them ninety days' written notice

It may reject both firms' guarantees, since neither is a member of a clearing corporation, whatever net capital each one holds

It may reject neither firm's guarantee, since every broker-dealer is an eligible guarantor institution

It may reject the second firm's guarantee on that ground, but not the first's, which holds at least $100,000

On June 25 a transfer agent is told that its services for an issuer will end on July 1. Under Rule 17Ad-16, by when must it send written notice of the termination to the appropriate qualified registered securities depository?

By June 25, the day it was told, as the later of that day and ten calendar days before July 1

By June 21, ten calendar days before July 1, even though on that day it had not yet been told the termination date

By July 1, the effective date, as notice is due no later than the day its services actually end

By July 11, ten calendar days after its services end, once the successor agent's name is known

A recordkeeping transfer agent's mail to an individual holder comes back as undeliverable, and it has no new address for her. How does Rule 17Ad-17 time the free database searches it must run to find her?

A first search within thirty days after she became lost, and a second search within the thirty days before her property is escheated to the state

A first search between three and twelve months after she became lost, and a second between six and twelve months after the first

One search in each year after she became lost, continuing until she is found or her property is escheated to the state

A single search between six and twelve months after she became lost, repeated each year while the transfer agent still holds her property

Which of these lost securityholders does Rule 17Ad-17 NOT require a transfer agent to search for?

An individual whose holdings are worth $5,000 and whose mail has come back undeliverable twice

An individual holding shares worth $30, with no documentation on file that she has died

A corporation whose dividend mail has come back undeliverable, holding shares worth $40,000

A retired individual now living abroad, with holdings worth $200 and no address on record

Under Rule 17Ad-19, when may a transfer agent's written procedures dispense with stamping or perforating each cancelled certificate with the word CANCELLED?

When it reports each cancelled certificate to the Lost and Stolen Securities Program within three business days

When the certificate has been voided on the agent's records, which makes any physical marking of it unnecessary

When cancelled certificates are kept in a facility to which only the agent's authorized personnel have access

When its procedures provide for destroying cancelled certificates within three business days of their cancellation

Transfer Agents (SEC Rules 17Ad) | Financial Regulation Courses

What Is a Transfer Agent, and How Do the SEC's Rules 17Ad Regulate One?

A transfer agent keeps the official record of who owns an issuer's securities and carries out the changes to that record when securities are issued, transferred, exchanged or cancelled. Section 17A of the Securities Exchange Act of 1934 brings them under federal regulation.

Section 17A(c) requires a transfer agent to register with its appropriate regulatory agency, and the SEC's rules under it set the registration and reporting forms (Rules 17Ac2-1, 17Ac2-2 and 17Ac3-1) and the operating standards of Rules 17Ad-1 through 17Ad-19: turnaround, inquiries, securityholder records, safeguarding, and the duties owed to lost holders.

What a Transfer Agent Does

Section 3(a)(25) of the Exchange Act defines a transfer agent as any person who, on behalf of an issuer or on behalf of itself as issuer, countersigns securities on issuance, monitors issuance to prevent unauthorized issuance (the registrar function), registers transfers, exchanges or converts securities, or transfers record ownership by bookkeeping entry without issuing certificates.

The definition has two exclusions. An insurance company or separate account that performs these functions solely for the variable annuity contracts or variable life policies it issues is not a transfer agent, and neither is a registered clearing agency that performs them solely for the options contracts it issues.

The Appropriate Regulatory Agency

Every transfer agent has an appropriate regulatory agency, defined in Section 3(a)(34)(B) of the Exchange Act, and the identity of that agency follows the kind of institution the transfer agent is. The Comptroller of the Currency is the agency for a national bank, a subsidiary of one, and an insured federal savings association. The Board of Governors of the Federal Reserve System is the agency for a state member bank, a bank holding company and certain of their subsidiaries. The Federal Deposit Insurance Corporation is the agency for an insured bank that is not a Federal Reserve member and for an insured state savings association.

The SEC is the appropriate regulatory agency for every other transfer agent. A transfer agent that is not a bank or bank affiliate therefore registers with and reports to the SEC on Form TA-1.

How Authority Is Divided Between the SEC and the Bank Regulators

Section 17A(d)(1) bars a registered transfer agent from acting in contravention of two sets of rules: those the SEC prescribes in the public interest, for investor protection or otherwise in furtherance of the Act, and those its appropriate regulatory agency prescribes for the safeguarding of securities and funds. The SEC's Rules 17Ad therefore reach bank transfer agents too.

For a transfer agent whose agency is a bank regulator, that regulator enforces compliance using its banking enforcement powers under 12 U.S.C. 1818, and the persons doing business with the transfer agent are deemed depositors for that purpose. The bank regulator assumes primary responsibility to examine the transfer agent and enforce compliance, and it and the SEC must consult each other at least fifteen days before either issues for comment or adopts a rule concerning such a transfer agent.

That allocation does not shrink the SEC's own powers. Section 17A(d)(3)(B) provides that nothing in it impairs or limits, other than by the requirement of notification, the SEC's authority to make rules or to enforce the Act against any transfer agent or person associated with one.

Registration Under Section 17A(c) and Form TA-1

Section 17A(c)(1) makes it unlawful for an unregistered transfer agent to use the mails or interstate commerce to perform transfer agent functions for a security registered under Section 12 of the Act, or one that would have to be registered but for certain exemptions in Section 12(g)(2). Under Section 17A(c)(2) a transfer agent registers by filing an application with its appropriate regulatory agency, and the registration becomes effective 45 days after the agency receives it or within such shorter period as the agency determines.

For transfer agents whose agency is the SEC, Rule 17Ac2-1 uses that shorter period. The application is filed on Form TA-1 and becomes effective on the thirtieth day after filing, unless the SEC acts to accelerate, deny or postpone the registration. If the applicant amends its Form TA-1 before the registration has become effective, the effective date moves to the thirtieth day after the amendment is filed.

After registration, the information on Form TA-1 must be kept accurate: when any of it becomes inaccurate, misleading or incomplete, the registrant must file a correcting amendment within sixty days.

Denial, Postponement, Suspension and Revocation

Under Section 17A(c)(3) the appropriate regulatory agency must, by order, deny registration to, censure, limit the activities of, suspend for up to twelve months, or revoke the registration of a transfer agent if it finds, on the record after notice and opportunity for hearing, that the sanction is in the public interest and that the transfer agent or a person associated with it has committed one of the kinds of misconduct listed in Section 15(b)(4), such as a disqualifying conviction within ten years of the proceedings.

While it decides whether to deny a registration, the agency may by order postpone its effective date, but only for up to fifteen days. A longer postponement, lasting until the final decision, requires notice and opportunity for hearing first, and that hearing may consist solely of affidavits and oral argument.

A person whom the agency has suspended or barred from association with a transfer agent may not willfully become or remain associated with one without the consent of both the agency that entered the order and the agency for the transfer agent concerned.

Withdrawal From Registration on Form TA-W

A registered transfer agent may withdraw from registration by filing a notice of withdrawal, on Form TA-W for agents registered with the SEC, upon whatever terms its agency deems necessary or appropriate. Rule 17Ac3-1 makes the notice effective on the sixtieth day after filing or within a shorter period the SEC may set.

Withdrawal is not a way out of a pending proceeding. If the notice is filed after the SEC has issued an order instituting proceedings under Section 17A(c)(3), or if the SEC institutes such a proceeding, or one to impose terms on the withdrawal, before the notice becomes effective, the withdrawal becomes effective only when and on the terms the SEC considers necessary in the public interest or for investor protection.

Where the agency finds that a transfer agent no longer exists or has ceased to do business as one, Section 17A(c)(4)(B) directs it to cancel the registration by order.

Annual Reporting on Form TA-2

Rule 17Ac2-2 requires every transfer agent that is registered on December 31 to file Form TA-2 covering that calendar year by the following March 31. A report counts as timely only if every required portion is filed by that deadline.

The depth of the report depends on the agent's activity. A registered transfer agent that received fewer than 1,000 items for transfer in the year and kept master securityholder files for no more than 1,000 individual accounts at year end completes only a short subset of the form. A named transfer agent that engaged a service company to perform all of its transfer agent functions answers only the form's first three questions, while one that outsourced some but not all functions completes the whole form and enters zero for the functions the service company performed.

Items, Routine Items and the Turnaround Standard

Rule 17Ad-1 measures transfer work in items. An item is a certificate or certificates of one issue covered by one ticket or presented by one presentor, an instruction to transfer securities the transfer agent holds in the presentor's name, or each line on a deposit or withdrawal shipment control list submitted by a registered clearing agency. Turnaround is complete when the old certificate is cancelled, the new one issued and registered, and the item made available to the presentor.

An item is routine unless it falls in one of the listed categories. Among the non-routine items are a certificate subject to a stop order or adverse claim, an item that needs further documents or an opinion of counsel, a transfer connected with a reorganization, tender offer, exchange, redemption or liquidation, a warrant, right or convertible security presented for exercise or conversion, and a security of an issue publicly offered under an effective registration statement within the previous fifteen business days in an offering not of a continuing nature.

Rule 17Ad-2(a) requires every registered transfer agent, except when acting as an outside registrar, to turn around at least 90 percent of the routine items it receives for transfer in a month within three business days of receipt. An item received at or before noon on a business day is deemed received at noon that day, and one received after noon or on a non-business day is deemed received at noon on the next business day. Routine items that miss the three days must still be turned around promptly, and non-routine items must receive diligent and continuous attention and be turned around as soon as possible.

Outside Registrars and the Processing Standard

An outside registrar is a transfer agent that performs only the registrar function for the certificates presented for transfer. Its task is to process, which Rule 17Ad-1 defines as performing the registrar function and returning the completed certificates to the presenting transfer agent, or telling that transfer agent, orally or in writing, why registration is delayed or may not be completed.

Rule 17Ad-2(b) sets a tighter clock for registrars than for transfer agents. An outside registrar must process at least 90 percent of the items it receives in a month by the opening of business on the next business day for items received at or before noon, and by noon on the next business day for items received after noon.

Failure Notices and Limitations on Expansion

A registered transfer agent that misses the turnaround or processing standard in any month must, within ten business days after the month ends, file a written notice with the SEC and with its appropriate regulatory agency if that is not the SEC. The notice states the numbers that missed, the reasons and the steps taken to prevent another failure.

Rule 17Ad-3 adds consequences for repeated failure. A transfer agent required to file a failure notice for each of three consecutive months may not, from the fifth business day after the third month, take on transfer agent work for any issue it does not already serve or add a new function for an issue it does serve. The limitation lasts until it completes three successive months without any required notice.

A sharper failure brings the issuers in. A transfer agent that for each of two consecutive months turns around, or processes, less than 75 percent of its items within the required time becomes subject to the same limitations and must, within twenty business days after the second month, send a copy of its failure notice for that month to the chief executive officer of every issuer for which it acts.

Exempt Transfer Agents and Excluded Securities

Rule 17Ad-4 relieves small transfer agents of the turnaround, notice and expansion rules. An exempt transfer agent is one that, during any six consecutive months, received fewer than 500 items for transfer and fewer than 500 items for processing. To claim the exemption it must, within ten business days after the sixth month, either prepare and keep in its own possession a document certifying that it qualifies, if its agency is the SEC or the Comptroller of the Currency, or file a notice certifying it with its agency, if that agency is the Federal Reserve Board or the FDIC.

An exempt transfer agent that no longer qualifies loses the exemption from the following month and may not qualify again until it has operated under the full rules for six consecutive months. An exempt agent is not left without a standard: once it has received 30 days' notice that an issue it serves has become depository-eligible, it must turn around 90 percent of that issue's routine items within five business days.

Separately, the turnaround, expansion and most monthly recordkeeping requirements do not apply at all to interests in limited partnerships, to redeemable securities of registered investment companies, or to interests in dividend reinvestment programs.

Responding to Written Inquiries

Under Rule 17Ad-5, when a person makes a written inquiry about the status of an item presented in the preceding six months, identifying the issue, the amount, the approximate presentment date and the registration, the transfer agent must respond within five business days, saying whether the item was received and transferred and, if not transferred, why and what more is needed. No separate response is needed if the new certificate is sent to the presentor within those five business days.

A request to confirm possession, as of a date, of a certificate presented within the past 30 days gets ten business days, and a request for a transcript of the person's account, as it stands or as it stood on a date up to six months back, gets twenty business days, in each case on assurance of a reasonable fee if the transfer agent charges one.

Claims about unpaid or incorrect dividends and interest are timed by their age. A current claim, whose payment date fell within the preceding six months, must be answered within ten business days, and an aged claim within twenty. A transfer agent that is no longer the paying agent but served the issue within the past three years must give the inquirer the current agent's name and address within ten business days. A telephone answer satisfies the written-response duty if it resolves the inquiry and the inquirer has not asked for a written response.

The Master Securityholder File and the Control Book

Rule 17Ad-9 defines the records at the heart of the job. The master securityholder file is the official list of individual securityholder accounts, and the control book records the total number of shares or principal amount the issuer has authorized and issued. The recordkeeping transfer agent maintains the master file; a co-transfer agent transfers securities without maintaining it, and a named transfer agent may engage a registered service company to do some or all of the work.

Rule 17Ad-10 requires the recordkeeping transfer agent to post debits and credits for every security transferred, purchased, redeemed or issued promptly: within five business days in general, within ten business days for an agent that serves only its own or affiliated issuers and uses batch posting, and within 30 calendar days for an exempt transfer agent, with registered fund agents held to the general standard.

Where a presented certificate's detail does not match the master file, the credit to the new holder is posted and the debit is held in a subsidiary file until the difference is resolved. A co-transfer agent must send its records of debits and credits within two business days of each transfer, and daily within five business days of a record date. The control book may be changed only on written authorization from a duly authorized agent of the issuer, and certificate detail deleted from the master file must be kept for six years.

Buy-Ins of Physical Overissuance

An overissuance means more securities are outstanding than the issuer issued. Under Rule 17Ad-10(g), a transfer agent that caused an actual physical overissuance and knows of it must buy in an equal number of shares, or principal amount, within 60 days of discovering it, while giving diligent attention to recovering the certificates. The duty falls only on the agent that erroneously issued the certificates.

Two arrangements change the deadline. If the transfer agent obtains a letter from the holder of the overissued certificates confirming they will be returned within 30 days after the 60-day period ends, it need not buy in by the sixtieth day, but it must buy in immediately if they are not returned in that extra period. If the certificates are covered by a surety bond indemnifying the transfer agent for all expenses of the overissuance, no buy-in is required at all, though the agent must still work to resolve it.

Aged Record Differences

A record difference exists when the master file's total does not equal the control book, or when a presented security's detail differs from the master file and cannot be resolved at once. Under Rule 17Ad-11 it becomes an aged record difference once it has existed for more than thirty calendar days.

Aged differences are reported in two directions. Monthly, the recordkeeping transfer agent reports to the official performing corporate secretary functions for the issuer, or to a municipal issuer's chief financial officer, whenever the market value of the issuer's aged differences exceeds a threshold that rises with the issuer's capitalization, from $50,000 in equity for an issuer capitalized at $5 million or less to $1 million for one above $150 million.

Quarterly, the transfer agent reports to its appropriate regulatory agency when its aged differences across all issues exceed a threshold scaled to the number of issues it keeps, or when its buy-ins in the quarter exceed $100,000. Debits and credits left unposted more than five business days beyond the posting deadline must be reported to the agency immediately, with the steps taken to correct the situation.

Safeguarding and the Annual Internal Control Report

Rule 17Ad-12 requires a transfer agent holding funds or securities connected with its transfer agent activities to keep the securities reasonably free from risk of theft, loss or destruction and the funds protected against misuse. In choosing the particular safeguards, the cost of the safeguards and the nature and degree of the potential financial exposure are both relevant factors.

Rule 17Ad-13 requires an annual study and evaluation, by an independent accountant, of the transfer agent's internal accounting control over transfers of record ownership and the safeguarding of related securities and funds, with the report filed with the SEC and the agent's regulator within 90 calendar days of the study's date. The control objective is reasonable, not absolute, assurance. If the report describes a material inadequacy, the transfer agent must notify the SEC and its regulator in writing, within 60 calendar days after receiving the report, of the corrective action taken or proposed.

Three classes are exempt from the accountant's report: an agent acting solely for its own securities and those of 51 percent parents or subsidiaries; an exempt transfer agent, subject to a limit on fund shareholder accounts; and a bank regulated by a federal banking agency, provided a report similar in scope is prepared for its board of directors or audit committee and its regulator has not told it otherwise.

Signature Guarantees

Section 17A(d)(5) and Rule 17Ad-15 govern how a transfer agent treats the institutions that guarantee an endorser's signature. Eligible guarantor institutions include banks, brokers and dealers of every kind defined in the Act, credit unions, national securities exchanges, registered securities associations, clearing agencies and savings associations. A transfer agent may not treat any of them, or any class of them, inequitably, and must keep written standards for accepting guarantees that do not reject a guarantor solely because it is of a particular type.

A transfer agent may reject a guarantee from a guarantor that fails its written standards, but must tell both the guarantor and the presentor of the rejection and its reasons within two business days. It may also reject for reasons unrelated to the guarantor, because the signer was not authorized to act for the guarantor, or because a broker-dealer guarantor is neither a member of a clearing corporation nor holds net capital of at least $100,000.

A transfer agent is deemed to comply if its standards rely on a signature guarantee program, accepting guarantees from members and rejecting guarantees from non-members. For six months after it adopts such a program, however, it may not reject a non-member's guarantee unless it has given that guarantor ninety days' written notice.

Notice of Assumption or Termination of Services

Under Rule 17Ad-16, a transfer agent that stops acting for an issuer, including through a merger or acquisition, must send written notice to the appropriate qualified registered securities depository by the later of ten calendar days before the termination takes effect or the day it learns the effective date. A transfer agent that takes on an issuer, or changes its name or address, gives the same notice.

A termination notice identifies the transfer agent with its FINS number, the issuer, the issues and their CUSIP numbers and, if known, the successor transfer agent, or else a contact person at the issuer. The receiving depository passes a copy to every other qualified registered securities depository within 24 hours. Absent an SEC designation, the appropriate depository is the one that is the largest holder of record as of the most recent record date.

Lost Securityholders and Unresponsive Payees

Rule 17Ad-17 applies to recordkeeping transfer agents and to brokers and dealers with customer security accounts. A lost securityholder is one to whom correspondence sent to the address of record has been returned as undeliverable and about whose new address no information has been received.

For each lost securityholder the firm must use reasonable care to find the correct address by running two searches of an information database service, by taxpayer identification number or, where that is unlikely to work, by name: the first between three and twelve months after the holder became lost, and the second between six and twelve months after the first. The searches must be free to the holder, and no method that charges the holder may be used before they are complete. No searches are needed if the holder is documented as deceased, is not a natural person, or holds assets worth less than $25 in total.

A separate duty runs to unresponsive payees. A paying agent, a term that reaches issuers, transfer agents, brokers, investment advisers, indenture trustees and custodians that distribute payments, must notify in writing a holder whose check has not been negotiated before the next regular check is sent or six months pass, no later than seven months after the unnegotiated check was sent. Checks under $25 are excluded, and the rule has no effect on state escheatment laws.

Cancelled Certificates

Rule 17Ad-19 requires every transfer agent handling securities certificates, and any agent it uses, to have written procedures for cancelling, storing, transporting and destroying them. A certificate is cancelled when it is physically marked to show it no longer represents a claim on the issuer and voided on the transfer agent's records. Each cancelled certificate must be stamped or perforated CANCELLED unless the agent's procedures destroy cancelled certificates within three business days.

The procedures must also restrict access to cancelled certificate facilities, keep records of each cancelled and destroyed certificate retrievable by CUSIP and certificate number, and report any cancelled certificate that is lost, stolen, missing or counterfeit to the Lost and Stolen Securities Program under Rule 17f-1.

Common Errors and Exam Traps

Common confusions: a bank transfer agent's appropriate regulatory agency is a bank regulator, yet the SEC's Rules 17Ad still bind it; the statute's 45 days is an outer limit, while SEC registrants become effective on the thirtieth day after filing Form TA-1; the 90 percent standard is three business days for a transfer agent but next-day for an outside registrar, and for a transfer agent it covers routine items only.

Other traps: the noon cutoff, the difference between three months of failure notices and two months below 75 percent, the sixty-day buy-in that a return letter or surety bond can displace, and the two free searches for lost securityholders.

Examination Relevance and Key Takeaways

Transfer agents sit between issuers, brokers and the depository, so their obligations appear wherever examinations test settlement, record ownership and certificate custody. Retain the registration and reporting forms, the turnaround and inquiry deadlines, the posting and buy-in duties, the accountant's report, the signature guarantee rule and the lost securityholder searches.