Scope of SEC's New Missing Securityholder/Unresponsive Payee Rules Limited to Security Holders
[27047]
February 25, 2013
TO: TRANSFER AGENT ADVISORY COMMITTEE No. 20-13BROKER/DEALER ADVISORY COMMITTEE No. 12-13
COMPLIANCE MEMBERS No. 13-13
INVESTMENT ADVISER MEMBERS No. 17-13
SMALL FUNDS MEMBERS No. 16-13 RE: SCOPE OF SEC’S NEW MISSING SECURITYHOLDER/UNRESPONSIVE PAYEE RULES LIMITED TO SECURITY HOLDERS
As we previously advised you, [1] last December, the SEC adopted a “missing securityholder” rule as required by the Dodd-Frank Act. [2] Generally speaking, the rule requires a “paying agent” to notify a “missing securityholder” of checks that have not been cashed within a specified period of time. Since the rule’s adoption, questions have arisen regarding whether paying agents are required by the rule to send notices in the event that checks made payable by a mutual fund to broker-dealers (e.g., commission checks) or drawn on a securityholder’s account but made payable to third parties remain uncashed. While the Institute does not provide legal advice to members concerning their activities, please note that the express language of the Dodd-Frank Act and SEC Rule 17Ad-17 under the Securities Exchange Act of 1934 (the “1934 Act”) limit the reach of this new provision to checks sent to “securityholders.”
In particular, Section 929W(A) of the Dodd-Frank Act required the SEC to amend SEC Rule 17Ad-17 under the 1934 Act to add “a requirement that the paying agent provide a single written notification to each missing securityholder that the missing securityholder has been sent a check that has not yet been negotiated.” [Emphasis added.] Consistent with this mandate, the SEC revised Rule 17Ad-17 to require, in relevant part, a “paying agent” to “provide not less than one written notification to each unresponsive payee” regarding the unresponsive payee’s uncashed checks. Importantly, the rule expressly defines an “unresponsive payee” as “a securityholder” who has not negotiated a check “sent to the securityholder” within a specified period of time. [3]
In other words, the express language of Section 929W of the Dodd-Frank Act and the amendments to Rule 17Ad-17 implementing Section 929W only require a paying agent to send a notice to those “securityholders” that have not cashed a check “sent to the securityholder by the paying agent.” The Release also clarifies that the notice obligation applies without regard to whether the securityholder is a natural person. [4]
Tamara K. Salmon
Senior Associate Counsel
endnotes
[1] See Institute Memorandum No. 26805, dated December 24, 2012.
[2] See Lost Securityholders and Unresponsive Payees, SEC Release No. 34-68668 (the “Release”), which adoped the amendments to Rule 17Ad-17. The effective date of the revised rule is March 25, 2013; its compliance date is January 23, 2014. Staff of the SEC has confirmed that the new requirements only apply to checks sent to a securityholder on or after January 23, 2014.
[3] The SEC Release explaining the new rule sometimes refers to the “securityholder” as the “investor.” See, e.g., Release at p. 17: “. . . the notices required by Rule 17Ad-17 could be properly sent to the investor’s address on the records of the paying agent without the need for a database search to determine the investor’s correct address.”
[4] Release at pp. 17-18.