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Dodd-Frank

SEC Approves New Rules Regarding Lost Holders of Securities

by   |   December 23, 2012

The SEC has approved new rules requiring broker-dealers to conduct searches for holders of securities with whom they have lost contact. 

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. 

Specifically, the new rules:

  • Require broker-dealers to conduct certain searches for lost holders of securities that transfer agents currently are required to conduct.
  • Require “paying agents” – including certain issuers, broker-dealers, transfer agents, and other entities – to notify certain persons – termed “missing securityholders” in the statute and “unresponsive payees” in the adopted rules – in writing that the paying agent has sent the person a check that has not yet been negotiated.
  • Excludes paying agents from their notification requirement when the value of the not yet negotiated check is less than $25.
  • Add a provision clarifying that the notification requirement for paying agents shall have no effect on a state’s ability to collect funds that it deems abandoned under so-called state escheatment laws.
  • Add a conforming technical rule to help ensure that broker-dealers have notice of their new obligations regarding lost holders of securities and unresponsive payees.

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.

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