Client Alert

SEC Relief for Registered Transfer Agents Affected by COVID-19

23 Mar 2020

On March 20, 2020, in response to business disruptions caused by the spread of the coronavirus (“COVID-19”), the Securities and Exchange Commission (“SEC”) issued an exemptive order under the Securities and Exchange Act of 1934 (“Exchange Act”) granting SEC-registered transfer agents relief from Exchange Act recordkeeping, reporting, and processing time requirements. The exemptive order also provides relief to transfer agents, broker-dealers, national securities exchanges (and their members), and clearing agencies from the Exchange Act’s requirement that such persons fingerprint their partners, directors, officers and employees. The exemptive order provides relief until May 30, 2020, but notes that the SEC may extend the time period if necessary.

Transfer Agent Relief

The SEC understands that COVID-19 could impact the ability of transfer agents, particularly those processing transactions involving certificated securities, to fulfill their obligations under section 17A of the Exchange Act, and the rules promulgated thereunder. These rules require registered transfer agents to process requests in a timely fashion, respond to various types of written inquiries and requests within specified timeframes, and establish policies and procedures to comply with the SEC’s transfer agent rules, among other requirements. To provide relief from these provisions, the SEC has temporarily exempted transfer agents from:

  • Filing reports with the SEC related to missing, lost, counterfeit, stolen, or cancelled securities;
  • Processing items within the timeframes established by Rule 17Ad-2 and filing related reports;
  • Calculating whether or not the transfer agent is an exempt transfer agent under Rule 17Ad-4;
  • Responding to customers’ written inquiries and requests within the specified timeframes;
  • Maintaining and updating required records;
  • Furnishing a securities position listing (if the transfer agent is also a clearing agency);
  • Reporting “record differences” (i.e., when the number of shares or principal dollar amount in the transfer agent’s master security holder file does not match the information in an issuer’s control book) to issuers and the SEC;
  • Filing reports of independent audits on the transfer agent’s system of internal accounting controls;
  • Establishing specially designated accounts for tender offers;
  • Accepting signature guarantees in the manner required by Rule Ad-15;
  • Notifying securities depositories that the transfer agent has changed its name or ceased to function as a transfer agent under Rule Ad-16;
  • Searching for lost security holders and unresponsive payees;
  • Handling physical securities certificates in the manner required by Rule Ad-19; and
  • The prohibition on transferring securities subject to restrictions on transfer to or from a securities intermediary.

Notably absent from the exempted rules is Rule Ad-12, which requires registered transfer agents to safeguard security holder or issuer funds or securities in a transfer agent’s custody or possession. Transfer agents must continue to ensure any funds or securities in their custody or possession are held in safekeeping in a manner reasonably free from risk of theft, loss or destruction.

Fingerprinting Relief

In addition to providing exemptions from most transfer agent specific requirements under the Exchange Act, the exemptive order also provides relief to those subject to the fingerprinting requirements of Exchange Act § 17(f)(2) and Rule 17f-2. Specifically, the order exempts national securities exchanges and their members, broker-dealers, registered transfer agents, registered clearing agencies, registered securities information processors, and national securities associations from the obligation to fingerprint each of their partners, directors, officers, and employees, and to submit those fingerprints to the U.S. Justice Department.

Conditions of Relief

To take advantage of either the Transfer Agent Relief or the Fingerprinting Relief, an affected party must provide written notification to the SEC’s Division of Trading and Markets via email stating:

  • That the affected person is relying on the exemptive order;
  • A description of the specific Exchange Act provisions and rules the affected person is unable to comply with, and a statement of the reasons why, in good faith, the affected person is unable to comply with such rules;
  • If a transfer agent knows or believes that it has been unable to maintain required books and records, a complete and accurate description of the types of books and records that were not maintained, the names of the issuers for whom such books and records were not maintained, the extent of the failure to maintain such books and records, and the steps taken to ameliorate any such failure to maintain such books and records

Conclusion

The SEC, like other federal and state regulators, will continue monitoring the current situation and may, if necessary, extend the time period for this relief and other exemptive relief provided in recent days. Registered transfer agents and other affected persons should consider how COVID-19 is affecting their operations and whether they need to rely on the relief provided in the exemptive order.

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