In the dog days of August, it would be tempting to put aside challenges created by new Securities and Exchange Commission (SEC) rules. But we all know that would be a mistake. Instead, attention needs to be paid now to new rules requiring searches for lost securityholders and persons holding uncashed checks, and–if that weren’t enough–to state audits of dormant broker-dealer accounts. So take the dog to the pool and get back to your office. In less than six months’ time, broker-dealers with customer accounts will be required to search for lost securityholders, and paying agents–a group that can include companies not otherwise regulated by the SEC–will need to track and trace uncashed checks.
Lost Securityholders–SEC Rule 17Ad-17 -
As of January 23, 2014, any broker-dealer that has customer security accounts that include accounts of lost securityholders must “exercise reasonable care to ascertain the correct addresses of such securityholders.” This reasonable care standard is different from the legal requirement imposed on broker-dealers by another SEC rule, Rule 17a-3(17), which requires broker-dealers to follow up with customers after they receive notice of the customer’s change of address. The new rule, codified in Securities Exchange Act Rule 17Ad-17, requires that broker-dealers conduct two database searches using at least one “information database service,” defined as an automated database service that contains addresses from the entire United States geographic area and the names of at least 50% of the U.S. adult population; is indexed by taxpayer identification number or name; and is updated at least four times a year; or a search service that produces comparable results.
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