FR 2024-28261

General Summary

The document is a notice from the Securities and Exchange Commission (SEC) seeking public comments on the extension of Rule 17Ad-11. This rule requires registered recordkeeping transfer agents to report certain discrepancies in security records. Specifically, the rule focuses on "aged record differences," which occur when there are unresolved mismatches between an issuer’s records and the master securityholder file for more than 30 days. The SEC plans to extend this information collection requirement and is inviting comments on its necessity, efficiency, and any possible improvements.

Significant Issues and Concerns

A few concerns arise from the document. Firstly, the lack of a summary or abstract makes it harder for readers to quickly grasp the document's purpose. The technical jargon, such as "aged record difference" and references to legal stipulations, could also alienate those unfamiliar with SEC regulations, making the document less accessible to the general public.

The document estimates that each report requires about 30 minutes of work and assumes a uniform compliance cost based on an average hourly rate of $78. Without a rationale for this rate or acknowledgment of industry variations, the cost estimate may not adequately represent the true financial burden on different transfer agents. Furthermore, while the document claims the reporting requirement is minimally burdensome for small agents, it fails to provide specific evidence supporting this claim.

Additionally, the document highlights the importance of monitoring but does not discuss consequences for non-compliance. This omission could leave readers uncertain about the potential repercussions of failing to adhere to the rule.

Impact on the Public

For the general public, including investors, the rule could provide increased transparency and accountability within the securities market. By ensuring record discrepancies are reported and addressed, the rule helps maintain the integrity and accuracy of financial records. However, the technical nature and the narrow focus of the document might make it relevant mostly to industry insiders rather than the general public.

Impact on Specific Stakeholders

For registered recordkeeping transfer agents, especially smaller ones, the rule could be a source of both administrative burden and operational cost, albeit minimal as per the SEC's assessment. They are required to comply with the reporting and recordkeeping obligations, which might strain limited resources.

Regulatory agencies benefit from these reports as they use the information to monitor compliance and performance effectively, helping to identify and address issues within the financial system. However, the lack of detailed information on non-compliance consequences might limit the perceived significance of these reports, possibly affecting the willingness or urgency to comply.

In summary, while the document outlines an important regulatory step aimed at strengthening market oversight, several aspects could be clarified or expanded to better communicate its implications and obligations to all stakeholders involved.

In reviewing the financial references in the document related to Rule 17Ad-11 and its information collection requirements, several points can be highlighted that provide insight into the economic implications and issues noted in the text.

The document outlines how registered recordkeeping transfer agents are required to handle discrepancies in financial records, specifically those termed as “record differences.” These discrepancies occur when the number of shares or the principal dollar amount of securities in an issuer's records do not align with those documented in the master securityholder file. Importantly, if this record difference persists for more than 30 calendar days, it is classified as an "aged record difference." This mechanism is in place to ensure that inaccuracies or misalignments in recordkeeping are swiftly addressed, adding an element of financial oversight into registered transfer agents' operations.

From a cost perspective, the document estimates the internal cost of compliance associated with filing the required reports under Rule 17Ad-11. The average hourly rate of $78 is assumed for a compliance staff employee at a transfer agent. Consequently, it is determined that completing each report involves an internal cost of approximately $39. Given this estimate, the total annual internal cost of compliance for the estimated eight respondent agents is approximately $39 in total. This minimal cost projection is noteworthy, as it appears to stem from the assumption that all agents have equal access to the necessary information and that such operations are routine and streamlined.

In terms of issues identified, the average hourly rate of $78 is assumed without a detailed explanation of how this rate reflects the broader industry standards or variations within different regions or different scales of operation. This blanket assumption may not accurately reflect potential variations, especially for smaller entities that might face a different cost structure or operational constraints. Furthermore, the document's mention of the minimal burden on small transfer agents appears to lack empirical support or detailed analysis, which might obscure the true cost impact on these smaller entities.

By placing such financial references alongside other known data points, it becomes evident that while the rule aims to minimize the reporting burden and associated costs, the document does not fully explore the potential variations in labor costs or operational complexities among different sizes and types of firms. This could lead to disparities in compliance costs that are not immediately apparent from the document's financial estimates. Additionally, while these references to compliance costs are important, they do not cover potential financial consequences for non-compliance, which might be significant for transfer agents and add another layer of economic considerations.