SEC Approves New Rules Regarding Lost Holders of Securities


Washington, D.C., Dec. 21, 2012 — The Securities and Exchange Commission today unanimously approved new rules requiring broker-dealers to conduct searches for holders of securities with whom they have lost contact. 

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A similar rule already applied to recordkeeping transfer agents, who are the intermediaries between the clearing house and the broker-dealer.  The Dodd-Frank Wall Street Reform and Consumer Protection Act tasked the SEC with extending the application of this rule to broker dealers so that broker-dealers have the same obligation.

The new rules also require broker-dealers and other securities market participants to provide notifications to persons who have not processed checks that they have received in connection with their securities holdings. 

"For the first time, broker-dealers will have a duty to reach out and find those they have lost touch with.   It´s a straightforward rule with a common-sense objective," said SEC Chairman Elisse Walter.  "Among other things, it will make it more likely that investors will get the money that they may not have realized is owed to them."

Specifically, the new rules:

The original rule – Rule 17Ad-17 – required only recordkeeping transfer agents to exercise reasonable care to ascertain the correct addresses of "lost securityholders" and conduct certain database searches for them.  This loss of contact can be harmful to holders of securities because they no longer receive corporate communications or the interest and dividend payments to which they may be entitled.  In addition, the securities and any related interest and dividend payments to which the holders of securities may be entitled are often placed at risk of being deemed abandoned under operation of state escheatment laws. 

The amendments will become effective 60 days after the date of publication of the release in the Federal Register.  The compliance date will be one year after the date of publication of the release in the Federal Register.

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The new rules are available in draft form while pending review at the Office of Management and Budget (OMB) of the major rule analysis under the Small Business Regulatory Enforcement Fairness Act.  After the OMB review is complete, the Commission will issue the rule release in final form and send it to the Federal Register for publication.