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SEC Issues Rules Requiring Broker-Dealers to Search For Lost Securities Holders

Published March 21, 2013

The Securities and Exchange Commission (SEC) has issued new rules for broker-dealers requiring them to search for securities holders if they lose contact with them.  The rules require for the first time that broker-dealers attempt to find securities holders that they have lost touch with.  Broker-dealers and other participants in the securities market must also notify people who have not processed checks that were issued to them in association with their securities.

Record-keeping transfer agents, who function as intermediaries between broker-dealers and the clearing house, were already subject to a similar rule.  The SEC was required to apply the same requirement to broker-dealers under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Elisse Walter, the Chairman of the SEC, said that the new rules have a common-sense objective and would help investors receive funds that they may not realize they are owed.

Specifically, under the new rules, broker-dealers must conduct the same searches for lost securities holders that transfer agents conduct. In addition, broker-dealers, transfer agents, and other paying agents must notify unresponsive payees in writing of unprocessed checks, unless the check is for less than $25.

The previous rules required only record-keeping transfer agents to use reasonable care to find the addresses of missing securities holders and conduct searches of databases to find them.  When a missing securities holder cannot be located, the securities, interest and dividends may be at risk of being designated as abandoned under state laws.

The new rules will go into effect 60 days after they are published in the Federal Register, and broker-dealers will have one year to achieve compliance.

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