Obligation to Search for Lost Securityholders – SEC Rule 17Ad-17
The SEC Adopts New Obligations for Broker-Dealers Regarding Lost Securityholders and Unresponsive Payees
On December 21, 2012, the Securities and Exchange Commission unanimously adopted rules required by the Dodd-Frank Act that require Broker-Dealers and certain other market participants to search for holders of securities with whom they have lost contact and provide notifications to persons who have not negotiated checks that have been sent to them.
The amended Exchange Act Rule 17Ad-17 will require Broker-Dealers with customer security accounts to use reasonable care to ascertain the addresses of lost securityholders. Specifically, Broker-Dealers must conduct two database searches to ascertain the address of securityholders to whom any correspondence was sent and returned as undeliverable and for whom the Broker-Dealer has not received updated address information (“lost securityholders”). Under this rule, the Broker-Dealer must conduct mandatory searches through an information database service that contains addresses from the entire US geographic area, contains names of at least 50% of the US Adult population, is indexed by taxpayer identification number or name and is updated at least four times per year. The searches must be conducted by taxpayer identification number, or if a search based on taxpayer identification number is not likely to locate the securityholder, by name. The securityholder may not be charged for these mandatory searches.
The amendments became effective March 25, 2013. The compliance date will be January 23, 2014.
Mandatory searches and Undeliverable Mail
The mandatory database searches must be conducted between three and twelve months from the later of:
- The date upon which a correspondence is returned as undeliverable, or, if a returned correspondence is re-sent within one month from the date it was returned and is again returned as undeliverable, the date on which the re-sent item is returned as undeliverable.
- The second required database search must be performed between six and twelve months after the first search
The obligation to search does not apply when:
- The Broker-Dealer has received documentation that the securityholder is deceased
- The total value of assets in the securityholder’s account is less than $25
- The securityholder is not a natural person
Record Keeping and Procedure Requirements
Horizontech is well positioned to help Broker-Dealers comply with SEC Rule 17Ad-17
We have success in locating lost securityholders, as well maintaining systems, processes and procedures for managing and tracking undeliverable securityholder’s First Class mail. Broker-Dealers do not need to build a new system, or platform because we already have it in place. We can easily and quickly plug a number of solutions directly into any existing Broker-Dealer operation for complying with this rule, including integrated document capture (Cloud and non-Cloud) and address search.