December 20, 1994
TO: OPERATIONS COMMITTEE No. 34-94
TRANSFER AGENT ADVISORY COMMITTEE No. 49-94
RE: SEC PROPOSED AMENDMENTS TO TRANSFER AGENT RULES
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The Securities and Exchange Commission is proposing amendments to certain transfer agent
rules regarding turnaround time, recordkeeping and safekeeping of shareholders' assets. The rule
changes are being considered in preparation for the shortened settlement period from T+5 to T+3 and a
proposal to establish a transfer agent operated book-entry registration system ("direct registration
system" or "DRS"). While book-entry is the predominant form of registration for registered investment
company shares and dividend reinvestment plans, the proposal allows this form of registration to be
extended to corporate equity and debt security holders. A copy of the Commission's proposing release
is attached.
The Commission is also seeking comment on whether additional rules are needed in light of
T+3 and the proposed direct registration system. Of particular interest to registered investment
companies are discussions in the proposing release related to: confirmation statement issuance and
disclosure, separate bank accounts for investors funds' minimum net worth and insurance requirements.
Confirmation Statement Disclosure
In light of the availability of "book-entry" registration for all transfer agents, and the reduced
number of certificated transactions, the Commission is seeking comment on the types of records
transfer agents must keep and the disclosure transfer agents should be required to make. Specifically, for
transfer instructions either transmitted electronically or by telephone, what, if any, additional records
transfer agents should be required to maintain to ensure the integrity of the instructions.
With regard to confirmation statements, the Commission is seeking comment on whether
transfer agents should be required to a.) issue confirmation statements every time there is a transaction
that changes the shareholder's account (similar to those required to be sent by broker/dealers in Rule
10b-10), and b.) disclose specific information on shareholder confirmation statements. The Commission
is seeking comment on what, if any, information should be required disclosure on the shareholder's
confirmation statement. Also, if there is no activity in a shareholder's account, how often transfer agents
should send a statement to the shareholder.
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Separate Bank Accounts for Shareholders
The Commission is proposing an amendment to Rule 17Ad-12, under the Securities Exchange
Act of 1934, which would require every registered transfer agent to maintain a "Bank Account for the
Exclusive Benefit of Security Holders". This bank account would remain separate from any other bank
account of the transfer agent. The proposed rule is intended to restrict commingling of shareholders'
funds with other funds of the transfer agent. The Commission is seeking comment on this proposal and
whether other financial institutions or account structures in addition to a bank might be used or
mandated.
Minimum Net Worth and Insurance Requirements
The Commission is seeking comment on whether minimum net worth requirements for transfer
agents are necessary and whether financial risks to shareholders would be reduced significantly if a
minimum net worth requirement for transfer agents were regulated. Issues to be considered include
whether net worth requirements impose undue expense on transfer agents and whether alternatives to
net worth requirements will also achieve the goals of propt, accurate, and safe transfer and clearance of
transactions.
Also for consideration is whether an insurance requirement is necessary for the protection of
investors and, if so, what type and amount should be required. Comment is requested on whether the
insurance requirement should be imposed as an alternative to a net worth requirement and whether there
are safeguards other than an insurance requirement that should be considered appropriate.
Comments must be filed within 60 days of the proposal's publication in the Federal Register. If
there are issues you would like the Institute to consider including in its comment letter, please contact
me at 202/326-5850 by January 13, 1995.
Justine Phoenix
Director - Operations/
Transfer Agency
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