Each depositor insured to at least $250,000 per insured bank



Home > Regulation & Examinations > Bank Examinations >Trust Examination Manual




Trust Examination Manual

Section 11- Registration Of Transfer Agents

Transfer agents can be registered or non-registered.  A registered transfer agent is a transfer agent that has registered with the SEC or, in the case of banks serving as transfer agents, with an applicable Federal bank regulatory agency.  Whether a transfer agent must register depends on whether the transfer agent transfers Section 12 Securities.  Section 17A(c)(1) of the 1934 Act specifically states that "it shall be unlawful for any transfer agent, unless registered in accordance with this section, directly or indirectly, to make use of the mails or any means or instrumentality of interstate commerce to perform the function of a transfer agent with respect to any security registered under Section 12 of this title or which would be required to be registered except for the exemption from registration provided by subsections (g)(2)(B) or (g)(2)(G) of that section."  Section 12 requires the registration of the following types of securities

In most instances, FDIC-supervised transfer agents will act as transfer agent for securities registered pursuant to Section 12(g).  Instances where a state non-member bank serves as transfer agent for securities registered on a national securities exchange or for mutual funds are relatively infrequent.

Certain types of securities are exempt from registration under Section 12(g).  Exempted categories of securities include:

  • Any security listed and registered on a national securities exchange (e,g, American Stock Exchange, New York Stock Exchange, NASDAQ, etc.).  These are registered under Section 12(a)
  • Any security issued by an investment company registered pursuant to Section 8 of the Investment Company Act of 1940
  • Any security, other than permanent stock, guaranty stock, permanent reserve stock, or any similar certificate evidencing nonwithdrawable capital, issued by a savings and loan association, building and loan association, cooperative bank, homestead association, or similar institution, which is supervised and examined by state or Federal authority having supervision over any such institution
  • Any security of an issuer organized and operated exclusively for religious, educational, benevolent, fraternal, charitable, or reformatory purposes
  • Any security of an issuer which is a "cooperative association" as defined in the Agricultural Marketing Act.
  • Any security issued by a mutual or cooperative organization which supplies a commodity or service primarily for the benefit of its members and operates not for pecuniary profit, but only if the security is part of a class issuable only to persons who purchase commodities or services from the issuer, the security is transferable only to a successor in interest or occupancy of premises serviced or to be served by the issuer, and n dividends are payable to the holder of the security
  • Any security issued by an insurance company, subject to meeting certain conditions
  • Any interest or participation in any collective trust funds maintained by a bank or in a separate account maintained by an insurance company

In addition, Section 3(a)(12) defines certain categories or securities considered "exempted securities" for purposes of the 1934 Act.  The registration requirements of Section 12(g) do not apply to "exempted securities".  Particularly important for transfer agents is the designation of municipal securities as "exempted securities".  As a result, a transfer agent that transfers only municipal securities (typically bonds issued by local political subdivisions, but can also include state issues and industrial development bonds) is not required to register as a transfer agent with the SEC or, as appropriate, with its primarily Federal banking regulator.  Transfer agents that are not registered pursuant to Section 17A(c)(1) of the 1934 Act are not subject to the operational regulations contained in 17 C.F.R. 240.17Ad of the SEC's General Rules and Regulations.  The table below summarizes the registration requirements for transfer agents based on the type of securities transferred.

Security Type

When Transfer Agent Registration Applies

Stock Registered transfer agent use required if the stock issue is:
  • listed on a national securities exchange (New York Stock Exchange, American Stock Exchange, Chicago Stock Exchange, etc.) or listed on NASDAQ.
  • registered with the SEC (or federal banking agency) under federal securities laws. Registration of stock is required when issued by any other corporate issuer with both 500+ shareholders of record and $10 million or more in assets.  Refer to section on counting the number of shareholders of record.
Corporate Debt (Bonds, Debentures, Capital Notes, etc.) The registrar (transfer agent) must be registered if the bonds are listed on a national securities exchange (New York Stock Exchange, American Stock Exchange, Chicago Stock Exchange, NASDAQ, etc.).
Municipal Bonds No registration requirement under any circumstances. Also included in this exemption are industrial revenue and industrial development bond issues, because they are issued by state or local agencies.
Mutual Funds The transfer agent for a mutual fund must be a registered transfer agent. No exceptions are allowed.

It is important to recognize, however, that the Securities and Exchange Commission has opined (SEC Release 34-17111, 9-2-80) that once a transfer agent registers as a transfer agent that the transfer agent must comply with all of 17 C.F.R. 240.17Ad for every security for which it serves as transfer agent.   This means that the same SEC operational requirements would pertain to the transfer of municipal securities, despite the fact that municipal securities are "exempted securities" under the 1934 Act.  This requirement applies regardless of which department or section of the transfer agent organization effects securities transfers.   For example, a bank could serve as transfer agent for its own or its parent holding company stock, as well as serve as registrar for municipal bonds.  The fact that transfers of the bank's stock is effected in the bank's Treasury Department, while the transfer of municipal bonds takes place in the trust department would not relieve the trust department of its obligation to comply with SEC operational requirements just on account of municipal bond transfers taking place in another department of the institution.   Once a transfer agent becomes subject to the requirements of 17 C.F.R. 240.17Ad for any issue transferred, all other issues, whether otherwise exempt or not under the 1934 Act, become subject to the same SEC requirements.

Voluntary Registration of Securities

Section 12(g)(1)(B) of the 1934 Act allows any issuer of equity securities, not otherwise required to be registered, to register such securities by filing a registration statement. According to the SEC's Office of Compliance Inspections and Examinations, it is common practice for issuers to register voluntarily (i.e. when not required by the 1934 Act).

Counting the Number of Shareholders of Record

Sometimes there is a question whether an institution has 500 or more shareholders of record, which would require its stock to be registered under federal securities laws. Determining the number of shareholders of record may be difficult particularly when stockholders own stock in varying names or under differing capacities (individually, joint, as a partner, etc.). The difficulty may be further compounded when stock is held by a bank trust department in nominee name or by a securities broker in street name.

In order to determine the number of shareholders of record, it is necessary to refer to the SEC's definition of Securities "Held of Record" which is addressed in SEC Rule 12g5-1.  In principle, each "person" who has an ownership interest in a security is counted as a holder of record.  In particular, Rule 12g5-1 identifies the following "persons" as owners of record:

  • Securities identified as held of record by a corporation, a partnership, a trust whether or not the trustees are named, or other organization shall be included as so held by one person.
  • Securities identified as held of record by one or more persons as trustees, executors, guardians, custodians or in other fiduciary capacities with respect to a single trust, estate or account shall be included as held of record by one person.
  • Securities held by two or more persons as co-owners shall be included as held by one person.

Rule 12g5-1 includes an exception to the "persons" described above. In particular:

  • Securities held, to the knowledge of the issuer, subject to a voting trust, deposit agreement or similar arrangement shall be included as held of record by the record holders of the voting trust certificates, certificates of deposit, receipts or similar evidences of interest in such securities: Provided, however, That the issuer may rely in good faith on such information as is received in response to its request from a non-affiliated issuer of the certificates or evidences of interest.

For trust departments this means that in most instances, each trust account holding shares counts as one shareholder of record, without regard to the number of beneficiaries. Trust accounts established with pass-through voting, such as in some 401(k) plans, the individual participant accounts holding the stock should be counted as shareholders of record.

When the bank has a single stockholder "master" record name (nominee name) covering multiple persons (as with a trust department or a securities broker), the bank is obligated to make reasonable efforts to determine how many stockholders of record are represented by the "master" record.

In the case of the bank's own trust department, the bank is expected to obtain the requisite information, since it has control over the trust department's records. In other trust institutions, the bank should request the information.

 

    Last Updated 04/02/2008

supervision@fdic.gov