J. Baker: Comments on S7-11-99

National Association of Unclaimed Property Administrators

May 17, 1999

Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-0609

Dear Mr. Katz:

The National Association of Unclaimed Property Administrators (NAUPA) is pleased to offer comments on the Securities and Exchange Commission ("SEC") proposals to amend Rule 17Ac2-2 and related Form TA-2 and to rescind Rule 17a-24 under the Securities Exchange Act of 1934. These proposed rules were issued through Notice of Proposed Rulemaking and Request for Comments, Federal Register Volume 64, Number 61, Dated March 31, 1999, file number S7-11-99.

From the information provided the major emphasis of the proposed changes concerns the collection of information on lost securityholders, reviews the effectiveness of the due-diligence process and addresses a desire to streamline the reporting process. These issues also concern our membership.

As you are aware, each state has enacted a version of the Uniform Unclaimed Property Act. State administrators are unclaimed property experts charged with the responsibility of ensuring compliance and making efforts to reunite owners with their property. Each state is a member of NAUPA and implementing effective holder due-diligence requirements and efforts to streamline reporting requirements have been an important goal of our Association.

Our comments include a summary, a response, and request for changes or additions to Form TA-2. Our suggestions, if implemented by the SEC would enhance efforts made to return property to lost securityholders, strengthen requirements that would further protect their lost assets, and would increase effective methods of due diligence prior to property being reported and remitted to a state.

Thank you for the opportunity to comment and respond to these rules.

Sincerely,

Jessie Baker
NAUPA President

Enclosure [Webmaster note: see below]

cc: NAUPA Member States

THE NATIONAL ASSOCIATION OF UNCLAIMED PROPERTY ADMINISTRATORS

COMMENTS
ON PROPOSED RULES
17Ac2-2 AND RELATED FORM TA-2 AND RESCIND RULE 17a-24

INTRODUCTION

The National Association of Unclaimed Property Administrator ("NAUPA") appreciates this opportunity to offer comments on the Securities and Exchange Commission's ("SEC") Proposed Rule to amend 17Ac-2 (related to form TA-2) and to rescind Rule 17a-24 which requires the reporting of information about lost securityholders to the SEC. These Proposed Rules were issued through Notice of Proposed Rulemaking and Request for Comments, Federal Reg. Vol. 64, Number 61 (1999), file number S7-11-99, with an May 17, 1999 deadline for the submission of comments.

BACKGROUND

The National Association of Unclaimed Property Administrators is an organization of unclaimed property professionals from the fifty- (50) states and the District of Columbia. NAUPA's mission, as an organization, is one of education, marketing, and networking in support of the member states' unclaimed property programs. The primary mission of the states' unclaimed property programs is to locate lost owners (regardless of the nature or type of property) and return their property to them. State unclaimed property laws which are custodial in nature¹, have existed for an average of thirty (32) years, and as a result the states have attained a substantial level of expertise in this area. The knowledge and experience of the states rendered then uniquely qualified in the location of missing owners. From this standpoint, having read the Proposed Rulemaking, NAUPA believes that the SEC and NAUPA have the same objectives: to locate lost owners, to preserve and protect the property until those owners are located, and to ensure that owner are kept whole.

Proposed Rule 17a-24 - Lost Securityholder Data

To rescind the rule and for information to be reported under this rule now will be required to be reported under the new proposed rule to amend 17Ac2-2 and Related Form TA-2.

RESPONSE:

The Association favors the SEC proposal to rescind the rule. This action by the SEC will significantly streamline the reporting process for transfer agents and any actions to assist transfer agents in reporting this information to the SEC is encouraged. The Commission should refine transfer agents' reporting requirements so that the information transfer agents are required to file would give a better indication of the effectiveness. The Association will comment further under the Proposal to Amend Rule 17Ac2-2 and Related Form TA-2.

Proposed Rule 17Ac2-2 and Related Form TA-2

Changes Form TA-2 (has not been reviewed since 1986) in which information collected under Rule 17a-24 (to be rescinded) will be required to be reported under this rule. Other changes are being proposed, which will improve the quality of data received and to elicit additional information from the transfer agents.

RESPONSE:

Summary of Proposed Changes from the Association perspective but not limited to:

Requires every transfer agent registered on June 30 to file TA-2 (form) with the SEC by August 31 of that calendar year, even if the transfer agent' registration has been withdrawn in the interim.
The change permits exception to the full filing requirement, if an agent has fewer than 1000 items for transfer and fewer than 1000 items for processing in the twelve month period ending June 30, and does not maintain more than 1000 master securityholder accounts.
Transfer agents which engage a service company to perform all of their transfer and processing functions to complete only the first four questions of form TA-2.
Categories of individual securityholder accounts are renamed to clarifying the inclusion of open-end investments company securities.
Definitions found in security transfer rules, put into form instructions.
Example - Lost Securityholder
Creates a twelve-month reporting period instead of a six-month reporting period, ending June 30 of each year.
Desire to streamline the reporting process, obtain more complete information and consistent records.

Changes which relate to information about lost securityholders, which may be useful to analyzing a transfer agent's unclaimed property reporting.

Inclusion of numbers of accounts in direct purchase and dividend reinvestment plans is required both as separate numbers and in the overall number of securityholder accounts maintained.
Corporate equity securities and corporate debt securities will be reported as separate numbers.
Where a change in transfer agents has occurred, the agent will be asked the report the current number and aggregate market value of "securities record differences." The term "securities record differences" relates to out of balance issues, as described in Rule 17Ad-g(g).
The transfer agent will be asked to report the number of months during the reporting period in which the transfer agent was not in compliance with the specified turnaround time for routine items.
Information on TA-2 will disclose the effectiveness of the due-diligence process.

1.

Agents will report the number of lost security holders for which a first and second data base search has been conducted and for which correct addressees have been obtained as a result of the searches.

2.

Disclose the number of lost securityholder accounts on their files and the percentage of total accounts represented by such lost securityholder accounts.

3.

Disclose the number of lost securityholder accounts remitted to the states.
The changes will provide the most effective means in tracking lost securityholder information, in which the SEC is to gauge the effectiveness of Rule 17ad-2

COMMENTS:

The SEC efforts to change the information reported on TA-2 comes as a result of their desire to streamline the process, obtain more information and to gauge the effectiveness of newly enacted lost securityholder accounting rules. The Association supports the proposed changes to Rule 17Ac2-2 and Related Form TA-2, but now submits the following recommendations (and the reasons why) to be considered by the SEC.

Additional Questions Added to Form TA-2

Question Number One

"For how many of your issues do you perform escheat reporting?"

Why - Explanation

1.

Not all transfer agents provide escheat reporting for all of their issuers.

2.

Under the requirements of the SEC you are asking for information on TA-2 in which you are asking to be disclosed to you the effectiveness of the due-diligence process.
Agents will report the number of lost security holders for which a first and second data base search has been conducted. For which correct addressees have been obtained as a result of the searches.
Disclose the number of lost securityholder accounts on their files and the percentage of total accounts represented by such lost securityholder accounts.
Disclose the number of lost securityholder accounts remitted to the states.
You (SEC) are already asking the transfer agents various questions and by having them answer the proposed questions noted above. This will help round out the trail of lost securityholders from the time they are lost, through the first database search, second database search, and then escheatment.

3.

The SEC is asking transfer agents to disclose what is being remitted to the states, and it would be logical to have them disclose the percentage of issuers they actually report lost securityholders pursuant to state unclaimed property laws.

4.

This information would provide the most effective means in tracking lost securityholder information, in which the SEC goal is to gauge the effectiveness of Rule 17ad-24.

Question Number Two

"Do you (transfer agent) impose a percentage limit on the fee a search firm may charge on accounts you release to the search firm before escheatment?"

If the answer is "Yes" then the follow up question is:

"What is the percentage limit?"

Why - Explanation

1.

With respect to the issue of professional search firms, Rule 17Ad-17(4) states that use of such firms would satisfy the transfer agent's search obligation, if the securityholder was not charged a fee as a result of that search. However, Rule 17Ad-17(4) further states that the use of search firms that charge a fee would be permissible, after the transfer agent has conducted the required two searches.

NAUPA has grave concerns regarding a provision that would sanction the use of professional search firms by transfer agents to locate lost securityholders, without any type of disclosure requirements. Most states require full disclosure of missing owners of unclaimed property who are contacted by search firms and asked to use their service. In addition, NAUPA believes that under no circumstances should the value of the owners' accounts be diminished without full disclosure as required under state laws governing unclaimed property accounts.

2.

This very question and the answer(s) would disclose to us information, on how broad the scope is on the number of securityholders who could be contacted and asked to pay a fee without disclosure.

3.

Practically all states do not charge percentage amounts for reuniting owners with their property and most states freely release missing owner lists to search firms after the states have attempted to locate the owners with statewide publications.

4.

NAUPA cannot speak to the extent to which all transfer agents utilize professional search firm, but NAUPA is aware of specific firms that are used by transfer agents to locate lost securityholders. While the mission of NAUPA's member states is to return property to its owners while keeping those owners whole, the mission of search firms is to make a profit. NAUPA strongly advocates that under no circumstances should the value of lost securityholders' accounts be diminished without full disclosure and that transfer agents be required to provide this information.

SUMMARY OF NAUPA'S POSITION ON PROPOSED RULE 17Ac-2 and Related Form TA-2

Therefore, in light of the above, NAUPA wholeheartedly supports Proposed Rule 17Ac-2 and wants the SEC to strongly consider adding the questions noted above to be included on Form TA-2. NAUPA believes that the collection of lost securityholder data by the SEC, as advocated is an excellent mechanism to ensure that efforts to locate lost securityholders are continued. Where the required two searches are unsuccessful NAUPA further believes that, to the extent the use of search firms to locate lost securityholders are used, the requirement of full disclosure to the securityholder would be only logical. The approach of collecting this data could provide incentives for transfer agents, to require that search firms provide full disclosure. In the future, search firms could bid openly to acquire this information from the transfer agents, and the lost securityholders (their customers) will receive the best price for using those services.

CLOSING COMMENTS

NAUPA member states are still moving forward in efforts to establish a National Unclaimed Property Database of post-escheat property and NAUPA has greatly enhanced it's website (www.unclaimed.org) with direct links to the SEC. The use of the Internet in finding people has exploded over the last few years and the states are meeting this challenge. The SEC should continue to seek ways, in which lost securityholders could have access to a national database. Also, that the SEC strongly encourage transfer agents to develop systems in which lost securityholders could be reunited with their property by doing a simple search over the Internet.

¹ Generally speaking, the states act as custodians or conservators of unclaimed intangible personal property. The states hold the property on behalf of the owners and protect the rights of the owners to reclaim it. Although custodial in nature, in modern parlance this practice is commonly referred to as "escheat" or "custodial escheat."

1.	Not all transfer agents provide escheat reporting for all of their issuers.
2.	Under the requirements of the SEC you are asking for information on TA-2 in which you are asking to be disclosed to you the effectiveness of the due-diligence process. Agents will report the number of lost security holders for which a first and second data base search has been conducted. For which correct addressees have been obtained as a result of the searches. Disclose the number of lost securityholder accounts on their files and the percentage of total accounts represented by such lost securityholder accounts. Disclose the number of lost securityholder accounts remitted to the states. You (SEC) are already asking the transfer agents various questions and by having them answer the proposed questions noted above. This will help round out the trail of lost securityholders from the time they are lost, through the first database search, second database search, and then escheatment.
3.	The SEC is asking transfer agents to disclose what is being remitted to the states, and it would be logical to have them disclose the percentage of issuers they actually report lost securityholders pursuant to state unclaimed property laws.
4.	This information would provide the most effective means in tracking lost securityholder information, in which the SEC goal is to gauge the effectiveness of Rule 17ad-24.

1.	With respect to the issue of professional search firms, Rule 17Ad-17(4) states that use of such firms would satisfy the transfer agent's search obligation, if the securityholder was not charged a fee as a result of that search. However, Rule 17Ad-17(4) further states that the use of search firms that charge a fee would be permissible, after the transfer agent has conducted the required two searches.
	NAUPA has grave concerns regarding a provision that would sanction the use of professional search firms by transfer agents to locate lost securityholders, without any type of disclosure requirements. Most states require full disclosure of missing owners of unclaimed property who are contacted by search firms and asked to use their service. In addition, NAUPA believes that under no circumstances should the value of the owners' accounts be diminished without full disclosure as required under state laws governing unclaimed property accounts.
2.	This very question and the answer(s) would disclose to us information, on how broad the scope is on the number of securityholders who could be contacted and asked to pay a fee without disclosure.
3.	Practically all states do not charge percentage amounts for reuniting owners with their property and most states freely release missing owner lists to search firms after the states have attempted to locate the owners with statewide publications.
4.	NAUPA cannot speak to the extent to which all transfer agents utilize professional search firm, but NAUPA is aware of specific firms that are used by transfer agents to locate lost securityholders. While the mission of NAUPA's member states is to return property to its owners while keeping those owners whole, the mission of search firms is to make a profit. NAUPA strongly advocates that under no circumstances should the value of lost securityholders' accounts be diminished without full disclosure and that transfer agents be required to provide this information.