Securities and Exchange Commission § 240.17Ad–11

the preceding month pursuant to para- are not returned to the transfer agent graph (g) of this section; and within the additional thirty-day pe- (ii) The reason for the buy-in. riod, the transfer agent immediately (d) Every co-transfer agent shall re- must execute the buy-in in accordance spond promptly to all inquiries from with paragraph (g)(1) of this section. the recordkeeping transfer agent re- (3) If the certificates involved are garding records required to be dis- covered by a surety bond indemnifying patched or mailed by the co-transfer the transfer agent for all expenses in- agent pursuant to § 240.17Ad–10(c). For curred as a result of actual the purposes of this paragraph, overissuance, the transfer agent need ‘‘promptly’’ means within five business not buy in the securities. The transfer days of receipt of an inquiry from a agent, however, shall devote diligent recordkeeping transfer agent. attention to resolving the overissuance (e) Every recordkeeping transfer and recovering the certificates. agent shall maintain and keep current (4) For purposes of this paragraph, an accurate control book for each issue discovery of the overissuance occurs of securities. A change in the control when the transfer agent identifies the book shall not be made except upon erroneously issued certificate(s) and written authorization from a duly au- the registered securityholder(s). thorized agent of the issuer. (h) Subsequent to the effective date (f) Every recordkeeping transfer of this section, registered transfer agent shall retain a record of all cer- agents that: tificate detail deleted from the master (1) Assume the maintenance and up- securityholder file for a period of six dating of master securityholder files years from the date of deletion. In lieu from predecessor transfer agents, of maintaining a hard copy, a record- (2) Establish a new master keeping transfer agent may comply securityholder file for a particular with this paragraph by complying with issue, or § 240.17Ad–7(f) or § 240.17Ad–7(g). (3) Convert from manual to auto- (g)(1) A registered transfer agent, in mated systems, the event of any actual physical must carry over any existing certifi- overissuance that such transfer agent cate detail required by this section on caused and of which it has knowledge, the master securityholder file. shall, within 60 days of the discovery of such overissuance, buy in securities A recordkeeping transfer agent shall equal to the number of shares in the not be required to add certificate detail case of equity securities or the prin- to the master securityholder file re- cipal dollar amount in the case of debt specting certificates issued prior to the securities. During the sixty-day period, effective date of this section. the registered transfer agent shall de- (Secs. 2, 17(a), 17A(d) and 23(a) thereof, 15 vote diligent attention to resolving the U.S.C. 78b, 78q(a), 78q–1(d) and 78w(a)) overissuance and recovering the cer- [48 FR 28246, June 21, 1983, as amended at 51 tificates. This paragraph requires a FR 5708, Feb. 18, 1986] buy-in only by the transfer agent that erroneously issued the certificate(s) § 240.17Ad–11 Reports regarding aged giving rise to the physical record differences, buy-ins and fail- overissuance, and applies only to those ure to post certificate detail to mas- physical overissuances created by ter securityholder and subsidiary transfers or issuances subsequent to files. September 30, 1983. (a) Definitions. (1) Issuer capitalization (2) If a transfer agent obtains a letter means the market value of the issuer’s from the party holding the overissued authorized and outstanding equity se- certificates that confirms that the curities or, with respect to a municipal overissued certificate(s) will be re- securities issuer, the market value of turned to the transfer agent not later all debt issues for which the transfer than thirty days after the expiration of agent performs recordkeeping func- the sixty-day period, the transfer agent tions on behalf of that issuer, deter- need not buy in securities by the six- mined by reference to the control book tieth day. If, however, the certificate(s) and current market prices.

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(2) An aged record difference is a which the aged record difference exists record difference that has existed for or for which the buy-in occurred; or more than thirty calendar days. (C) If it acts as a service company, to (b) Reports to Issuers. (1) Within ten the named transfer agent; and business days following the end of each (ii) By every named transfer agent month, every recordkeeping transfer that is engaged by an issuer to main- agent shall report the information tain and update the master specified in paragraph (d)(1) of this sec- securityholder file: tion to the persons specified in para- (A) To the official performing cor- graph (b)(3) of this section, when the porate secretary functions for the aggregate market value of aged record issuer of the securities for which the differences in all equity securities aged record difference exists or for issues or debt securities issues main- tained on behalf of a particular issuer which the buy-in occurred; or exceeds the thresholds set forth in the (B) With respect to an issue of munic- table below. ipal securities, to the chief financial officer of the issuer of the securities for Aggregate market value which the aged record difference exists of aged record differences or for which the buy-in occurred. Issuer capitalization exceeds (c) Reports to appropriate regulatory For equity For debt se- securities curities agencies (1) Within ten business days following the end of each calendar (1) $5 million or less ...... $50,000 $100,000 (2) Greater than $5 million but quarter, every recordkeeping transfer less than $50 million ...... 250,000 500,000 agent shall report the information (3) Greater than $50 million but specified in paragraph (d)(1) of this sec- less than $150 million ...... 500,000 1,000,000 tion to its appropriate regulatory agen- (4) Greater than $150 million .... 1,000,000 2,000,000 cy in accordance with § 240.17Ad–2(h), (2) Within ten business days fol- when the aggregate market value of lowing the end of each month (or with- aged record differences for all issues in ten days thereafter in the case of a for which it performs recordkeeping named transfer agent that receives a functions exceeds the thresholds speci- report from a service company pursu- fied below: ant to paragraph (b)(3)(i)(C)), every rec- (i) $300,000 if it is a recordkeeping ordkeeping transfer agent shall report transfer agent for 5 or fewer issues; the information specified in paragraph (ii) $500,000 for 6–24 issues; (d)(2) of this section to the persons (iii) $800,000 for 25–49 issues; specified in paragraph (b)(3) of this sec- (iv) $1 million for 50–74 issues; tion, with respect to each issue of secu- (v) $1.2 million for 75–99 issues; rities for which it acts as record- (vi) $1.4 million for 100–499 issues; keeping transfer agent, concerning any (vii) $1.6 million for 500–999 issues; securities bought-in pursuant to § 240.17Ad–10(g) or reported as bought-in (viii) $2.6 million for 1,000–1,999 pursuant to § 240.17Ad–10(c) during the issues; and preceding month. (ix) An additional $1 million for each (3) The report shall be sent: additional 1,000 issues. (i) By every recordkeeping transfer (2) Within ten business days fol- agent (other than a recordkeeping lowing the end of each calendar quar- transfer agent that performs transfer ter, every recordkeeping transfer agent agent functions solely for its own secu- shall report the information specified rities): in paragraph (d)(2) of this section to its (A) To the official performing cor- appropriate regulatory agency in ac- porate secretary functions for the cordance with § 240.17Ad–2(h), con- issuer of the securities for which the cerning buy-ins of all issues for which aged record difference exists or for it acts as recordkeeping transfer agent, which the buy-in occurred; when the aggregate market value of all (B) With respect to an issue of munic- buy-ins executed pursuant to ipal securities, to the chief financial § 240.17Ad–10(g) during that calendar officer of the issuer of the securities for quarter exceeds $100,000.

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(3) When the recordkeeping transfer § 240.17Ad–12 Safeguarding of funds agent has any debits or credits for se- and securities. curities transferred, purchased, re- (a) Any registered transfer agent deemed or issued that are unposted to that has custody or possession of any the master securityholder and/or sub- funds or securities related to its trans- sidiary files for more than five business fer agent activities shall assure that: days after debits and credits are re- (1) All such securities are held in quired to be posted to the master safekeeping and are handled, in light of securityholder file or subsidiary files all facts and circumstances, in a man- pursuant to § 240.17Ad–10, it shall im- ner reasonably free from risk of theft, mediately report such fact to its appro- loss or destruction (other than by a priate regulatory agency in accordance transfer agent’s certificate destruction with § 240.17Ad–2(h) and shall state in procedures pursuant to § 240.17Ad-19); that report what steps have been, and and are being, taken to correct the situa- tion. (2) All such funds are protected, in (d) Content of reports. (1) Each report light of all facts and circumstances, pursuant to paragraphs (b)(1) and (c)(1) against misuse. In evaluating which of this section shall set forth with re- particular safeguards and procedures spect to each issue of securities: must be employed, the cost of the var- (i) The principal dollar amount and ious safeguards and procedures as well related market value of debt securities as the nature and degree of potential or the number of shares and related financial exposure are two relevant market value of equity securities com- factors. prising the aged record difference (in- (b) For purposes of this section, the cluding information concerning aged term securities shall have the same record differences existing as of the ef- meaning as the term securities certifi- fective date of this section); cate as defined in § 240.17f–1(a)(6). (ii) The reasons for the aged record (Secs. 2, 17(a), 17A(d) and 23(a) thereof, 15 difference; and U.S.C. 78b, 78q(a), 78q–1(d) and 78w(a)) (iii) The steps being taken or to be taken to resolve the aged record dif- [48 FR 28248, June 21, 1983, as amended at 68 FR 74401, Dec. 23, 2003] ference. (2) Each report pursuant to para- § 240.17Ad–13 Annual study and eval- graphs (b)(2) and (c)(2) of this section uation of internal accounting con- shall set forth with respect to each trol. issue of securities: (a) Accountant’s report. Every reg- (i) The principal dollar amount of istered transfer agent, except as pro- debt securities and related market vided in paragraph (d) of this section, value or the number of shares and re- shall file annually with the Commis- lated market value of equity securities sion and the transfer agent’s appro- comprising any buy-in executed pursu- priate regulatory agency in accordance ant to § 240.17Ad–10(g); with § 240.17Ad–2(h), a report specified (ii) The party that executed the buy- in paragraph (a)(1) of this section pre- in; and pared by an independent accountant (iii) The reason for the buy-in. (e) For purposes of this section, the concerning the transfer agent’s system market value of an issue shall be deter- of internal accounting control and re- mined as of the last business day on lated procedures for the transfer of which market value information is record ownership and the safeguarding available during the reporting period. of related securities and funds. That re- (f) A copy of any report required port shall be filed within 90 calendar under this section shall be retained by days of the date of the study and eval- the reporting transfer agent for a pe- uation set forth in paragraph (a)(1). riod of not less than three years, the (1) The accountant’s report shall: first year in an easily accessible place. (i) State whether the study and eval- uation was made in accordance with (Secs. 2, 17(a), 17A(d) and 23(a) thereof, 15 generally accepted auditing standards U.S.C. 78b, 78q(a), 78q–1(d) and 78w(a)) using the criteria set forth in para- [48 FR 28247, June 21, 1983] graph (a)(3) of this section;

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