However, in circumstances where the Commission has developed experience and information as to known problems, the Commission should be willing to move forward to address those issues through the normal rulemaking process.
The Commission has been studying the transfer agent issues for some time.
7) There are no net capital standards, no insurance requirements, or other capital requirements for transfer agents. Clearly, the changes over the years that I’ve mentioned suggest that the Commission should take a renewed look at transfer agents and their operations.
When the transfer agent rules were adopted, fewer people owned stock, and those who did typically held their physical stock certificates themselves. Clearly, more American families today are invested in the capital markets and, thus, more people than ever depend on transfer agents to discharge their responsibilities promptly, accurately, and efficiently.
For example, the 2011 Roundtable and the SEC’s examination and enforcement activities provide significant information to allow the Commission to begin to act. As one example of action that should be taken, the Commission should adopt rules providing additional safeguards to protect against the unlawful distribution of unregistered securities.
These safeguards could include transfer agent due diligence obligations prior to the removal of restrictions (or legends) on stock certificates that otherwise would restrict their transfer. As noted, transfer agents function as gatekeepers, and persuading them to remove the restrictions on unregistered stock certificates is an essential step in perpetrating a fraudulent offering of unregistered securities.
Indeed, the distribution of unregistered securities is often associated with microcap pump-and-dump schemes and other penny stock fraud. The investing public needs capable, honest, and reliable transfer agents to help the capital markets function properly and effectively.
2) The transfer agent rules were originally adopted in 1977, with additional rules in the early 1980s, and have been amended rarely since. Technological advances and changes to business practices and market structure have created a significant gap between the transfer agent rules and the actual activities that transfer agents undertake in the current business environment.
They act as registrars and keep track of changes in the record ownership of a company’s securities. They ensure that companies’ interest, dividends, and other distributions get paid to the right holders of stocks and bonds. Transfer agents also monitor the restrictive legends and “stop transfer” orders that distinguish restricted securities from freely-tradable securities. This responsibility puts transfer agents in a unique position to identify and potentially prevent unregistered securities from being unlawfully distributed.The point estimates of this effect are somewhat lower than before but nevertheless simply that social security depresses saving by about fifty percent of its current value.The estimated reduction in saving is more than two-thirds of the concurrent "contributions" of employees and employers to the social security retirement and survivors fund.In fact, in October 2011, the Commission hosted a public Roundtable on the Execution, Clearance, and Settlement of Microcap Securities, which identified a number of issues related to the transfer agents' roles in the issuance and transfer of these microcap securities. Among other issues, the Roundtable highlighted the lack of Commission rules addressing appropriate levels of due diligence by transfer agents, the lack of guidance for removing restrictions from securities, and the need for more disclosure to the market of certain information that would inform investors about the appropriateness of transacting in microcap securities. 4) There can be no doubt that transfer agents are gatekeepers.After all, they keep track of the ownership of corporate securities. As I mentioned earlier, transfer agents have a key role in removing restrictions (or legends) that would otherwise restrict the transfer or sale of securities.I have also updated the analysis by including the five years of additional data that have become available since the original study was completed.The new estimates, presented in the current note, continue to indicate that social security substantially depresses private saving. r0270) Issued in November 1980 NBER Program(s): Public Economics In a 1974 paper in the Journal of Political Economy I discussed the theoretical ambiguity of the effect of social security on private saving and presented statistical evidence that social security does on balance depress saving.I have now corrected that error and re estimated the original consumer expenditure equation.Providing transfer agents with guidance to help them identify fraudulent distributions of unregistered securities will greatly advance the Commission’s goal of protecting investors.In addition, transfer agents’ role as gatekeepers in our capital markets provides them with an early opportunity to identify and report possible fraudulent offerings. 6) Transfer agents, at times, arguably could have major conflicts of interests.