📜 Sections for each of the TA rules

[JFWooten4]

As discussed in today's meeting, it's not generally understood how lax the TA regulations today are, per the limited role legacy agents play in the financial system. There should be a section going through each of the rules (at least the 17Ad series) one by one, and each section should provide the response of John/myself as someone who'd been complying with them for so long. Specific focus on the FinCen implications discussed today when it comes to the lost investor searches we've talked about so much.

---

Also leads into the treatment of new issues and replacements here.

[greengiantyo]

Are there some further sources/reading someone could see around the lax TA regulations?

[JFWooten4]

Hi @greengiantyo / {firstName},?¹

My answer here depends a little bit on if you're asking for final comment readers or drafters like us. For the final version, I try to include absolutely every little nook and cranny of relevant detail. Even things that end up being very small additions can become crucially important in future work.²

That full list of sources would be too long to stuff in this comment, but the majority of them should already be in the (unorganized) draft. That said, I'll assume you're talking in a more general sense for the rest of this. Also, thanks a ton for your newfound personal support. 💜

1. Securities Laws

The actual laws applicable on transfer agents from the SEC come by and large from a very narrow section of the '34 Act which I'll colloquially refer to as the "17Ad" rules.³ The rules currently range from 1 to 27, with a few oddities in naming historically interwoven. You can see them all here, but that could be a little overwhelming lol. But there is a notable exception to this trend, which I'll start explaining because it foundationally framed the intent, interpretation, and enforcement of these laws.

17 CFR § 240.17f-2

Firstly, I apologize if this legal format isn't familiar to you, as it certainly wasn't to me when I started out. But it's much more precise than saying something like "SEC Rule 17f-2." Indeed, I used this approach here,⁴ and much of the actual reference material now falls into tangential items which are actually best understood by a full legal-ish citation. Anyway, here's the link to the actual law, which is written in the same English they teach in elementary school!

The lawyers might make sentences as long as foreign DWAC transfer requests, but the substance of the regulation is spelled out in black and white. I say this early on because these laws can and do change when citizens like us exert pressure on the regulators to govern as we best see fit. That's the power of democracy, and why I believe so wholeheartedly that we must take seriously our unique opportunity to propose changes to each of these rules (based on our experiences).

1.1.1 Substance

This law requires generally that executives at transfer agents get fingerprinted by the FBI. You can see our card examples here and a discussion of the particular process here. Albeit they've changed materially the submission, review, and transaction methods in place since then.

There are quite a few details considered in all these laws. In this example, it covers the corner cases of "what happens when" they can't read your fingerprinting cards, case-by-case exceptions determined by SEC workers ("staff"), and even some old crap about record retention using microfilm.

1.1.2 Malleability

Importantly, both this and the 17Ad rules are all "C.F.R. rules" which is a fancy way of saying it's the SEC's lawyers' interpretations of their powers and responsibilities under the actual Congressional Acts in supra note 3. And so you don't need to bother looking that one up, supra means I'm referring to a footnote from before this sentence, whereas infra would be something after it. 😉 This legalese has worked its way into my style over the years of reading this policy for thousands of hours, so please let me know if I'm going too fast.

Each of these paths have their own process to update or otherwise amend the rules. As you likely know, the actual laws in the form of a Congressional Act need to go through the same process as any 'ol bill. Comparatively, the SEC's CFR rules are changed when new policies get proposed, commented, and adopted.

1.2 Relevant Ad Rules

The titles given are pretty self-explanatory from my POV, so I'll only add my own notes if anything particularly interesting comes to mind. The other rules excluded apply to clearing agencies. This has material implications in a world with a TAD, per the comment.

17 CFR § 240.17Ad-1 - Definitions

17 CFR § 240.17Ad-2 - Turnaround, processing, and forwarding of items

This seems to have been written chiefly for paper documents, circa the timeframe when you'd walk from the NYEE⁵ to the registrar a couple blocks over. And it was certainly originated before the internet given you have three days to say "read." Albeit, it also implicates 144 since it gets into classifying non-routine items from Ad-1.⁶

17 CFR § 240.17Ad-3 - Limitations on expansion

If you (the TA) fuck up Ad-2, which is nearly impossible but hey it happens to gargantuan bureaucracies.

17 CFR § 240.17Ad-4 - Applicability of §§ 240.17Ad-2, 240.17Ad-3 and 240.17Ad-6(a) (1) through (7) and (11)

This one is just a lengthy title. It gives you less rules to follow if you're a small biz.

17 CFR § 240.17Ad-5 - Written inquiries and requests.

17 CFR § 240.17Ad-6 - Recordkeeping

17 CFR § 240.17Ad-7 - Record retention

17 CFR § 240.17Ad-9 - Definitions⁷

17 CFR § 240.17Ad-10 - Prompt posting of certificate detail to master securityholder files, maintenance of accurate securityholder files, communications between co-transfer agents and recordkeeping transfer agents, maintenance of current control book, retention of certificate detail and "buy-in" of physical over-issuance

This is the one that probably gets talked about the most. It has had implications which led to my implementation of stock splits. Working to formalize this.

17 CFR § 240.17Ad-11 - Reports regarding aged record differences, buy-ins and failure to post certificate detail to master securityholder and subsidiary files

Mostly if you fuck up Id. Also Id. (very, very generally mostly followed by a period and supplemented in a following sentence) is another one of those legal things. It just means the previous thing.

17 CFR § 240.17Ad-12 - Safeguarding of funds and securities

Drastically underscoped. Presents material banking implications. Easy to use as a fraud catch-all.

17 CFR § 240.17Ad-13 - Annual study and evaluation of internal accounting control

Need an external audit unless you're a small biz per Ad-4.

17 CFR § 240.17Ad-14 - Tender agents

For tender offers.

17 CFR § 240.17Ad-15 - Signature guarantees

The damn stamps, traditionally. See our implementation. See also historic changes.

17 CFR § 240.17Ad-16 - Notice of assumption or termination of transfer agent services

17 CFR § 240.17Ad-17 - Lost securityholders and unresponsive payees

17 CFR § 240.17Ad-18 - Year 2000 Reports to be made by certain transfer agents

17 CFR § 240.17Ad-19 - Requirements for cancellation, processing, storage, transportation, and destruction or other disposition of securities certificates

There's an entire financial institution corporation set up to do all this. It's really quite nuanced and complicated. Ideally, we can overcome these historic burdens in TAR given you need a medallion to effectuate a transfer, and that stamp must/is/only stands on the books and records of the issuer itself (to be effective).

17 CFR § 240.17Ad-21T - Operational capability in a Year 2000 environment

2. Lax TA Regulations

Anyway, so I get that might be a lot to take in. But, crucially, it is absolute fucking peanuts compared to the vast, extensive, and nuanced regulations applied to every other securities industry participant. The historic argument for these vast differences is that there used to be thousands of agents, and everyone stood up for "the little guy" who only received like $20,000 in fees per year from their sparse $60 transfer requests.

This is a position I'll need to acknowledge and move on from in the very extremely materially different operating environment of a TAD. Interestingly, this is one of the very, very few gov docs that even mentions TADs publicly. Truly, the original proposed rule is quite the read, and I'm working to get a proper Discussion up for it ASAP for further general questions about it. 🫱🏼‍🫲🏻

Footnotes

1. Please forgive me if I get the (first) naming wrong, I can't presently recall if we've met before. ↩

2. See, e.g., OCC at n.138, which I added on a whim since it seemed relevant enough to the closing arguments. Now, this PREV context can be the stepping stone 🧠 Work in Harry Markopolis #9 needs to reach new "heights" in terms of influence in this comment letter. ↩

3. The two main ones we're presently dealing with are the Securities Exchange Act of 1934 (Congressional document and SEC's 17 C.F.R. § 240) and the Securities Act of 1933 (Congressional document and SEC's 17 C.F.R. § 230), which have been materially amended by Congress, interpreted by Commission lawyers, and ruled on by SCOTUS over the years. ↩

4. I've shared the context of this doc extensively with the community in the past, but I'll again just note that this process was abandoned. I chiefly filed the information to prevent Wall St from stealing through IP bullshit the innovations of TAD3. Honestly, the vast bulk of the heavy lifting from 1–15 comes from @stellar. ↩

5. Albeit it was technically the NYSE back then. ↩

6. This is not to excuse the mountain of opinion letters routinely provided for corporate insiders. ↩

7. Again, they need to maintain inter-rule references at a very large scale in Federal regs. ↩

[JFWooten4]

Ad6 will require fleshing out the arguments/context/history of issuance records not counting as transfer processes, per I think it was a 1987 FR Q&A release avaliable under staff interpetive actions

[JFWooten4]

@greengiantyo here are some quick srcs that I've seen before from the GPTs
Sorry for the longer initial answer lol
I've assigned this to myself since it requisites a bit of work I've done over the years, but by all means open to external collab!

srcs

• leg
• law
• sec

info

Transfer agents in the U.S. are generally subject to fewer stringent regulations compared to other financial institutions, primarily due to their specific roles and operational scope. Unlike brokers and banks, transfer agents are not always classified as financial institutions under the Bank Secrecy Act (BSA) unless they are owned by a bank or provide services to financial institutions like mutual funds. This results in varying levels of anti-money laundering (AML) compliance obligations, with non-bank transfer agents typically having lighter regulatory burdens unless they voluntarily adopt stricter controls under their contracts with clients.

The SEC oversees transfer agents under the Securities Exchange Act of 1934, requiring them to register and comply with certain rules like safeguarding securities and addressing unresponsive payees. However, the lack of a dedicated self-regulatory organization (SRO) means transfer agents operate without the additional oversight and peer accountability found in other sectors, such as brokers regulated by FINRA.¹ This regulatory gap can lead to weaker safeguards against fraud and operational errors compared to the robust systems in place for banks or broker-dealers.

Furthermore, some concerns about transfer agents include inadequate controls over physical certificates, commingling shareholder and operational funds, and inconsistent AML practices, as noted in SEC reviews. These issues highlight the potential for vulnerabilities, particularly among smaller or private transfer agents not embedded in highly regulated entities like banks.

---

All this introduces the banking nuances discussed in the last DUNA meeting with Bur should the Syndicate become an SPDI and have a choice of regulatory venue (OCC or SEC) on Form TA-2.

Footnotes

1. I dissent from ChatGPT here on shared clerical reasons. ↩

[greengiantyo]

Apologies for only now responding.

Lots of good information here! Thank you - looking forward to reading it ASAP.

[JFWooten4]

I didn't mention Ad-20 previously, but we can tie it into the history of cert pulls based on the proposing fns at 2004 amendments,

[JFWooten4]

The Ad-17 de-minimus exemption has not been indexed for inflation since enacted in 1997, and that should be updated given rising research costs and the consolidation of Prong-1 providers.

Inflation alone would equate to $50 today, and there were actually industry efforts back in 2013 to have it raised to $100.¹ A higher threshold makes sense, and it could easily be softened through the introduction of emailing requirements. There's practically no digital outreach standards aside from 14a-16. Plus it probably won't get updated again.

Footnotes

1. Really I'd like to see it at $120 for the decrease of purchasing power not accounted for in lower CPI data after coronavirus. The index has been changed substantially to dampen reflection of changing consumer prices, and my interpretation of the business world equates. Address checks can reach into the dozens of dollars per person without guarantee of location. ↩