SEC Rule 17ad-17: Lost Securityholder Requirements

The Securities and Exchange Commission (SEC) implemented Rule 17ad-17 to address the issue of lost securityholders. The regulation establishes a framework that certain financial institutions must follow to locate individuals with whom they have lost contact. This rule applies to recordkeeping transfer agents, brokers, and dealers. The objective of the rule is to ensure these reporting institutions exercise care in reuniting securityholders with their assets, thereby preventing those assets from being declared abandoned and turned over to state governments through escheatment.

Defining a Lost Securityholder

Under SEC Rule 17ad-17, a securityholder is officially designated as “lost” when an item of correspondence sent to their address of record is returned as undeliverable. If the institution re-sends the correspondence within one month and it is also returned, the securityholder is then considered lost. This definition directs resources toward cases with clear evidence of a lost connection. The rule also clarifies that these search requirements do not override or interfere with state escheatment laws.

The Required Search Process

Once a securityholder is classified as lost, Rule 17ad-17 mandates a specific search process. The reporting institution must proactively take steps to find the individual’s current address. The initial search must be conducted within two to seven business days of the securityholder being identified as lost.

If this first search attempt is unsuccessful in locating a valid address, the rule requires a second search. This subsequent effort must be initiated between six and twelve months after the first unsuccessful search. This follow-up requirement increases the likelihood of finding individuals who may have moved multiple times or have complex address histories. The searches must be conducted without charging the lost securityholder for the service.

To execute these searches, the rule requires the use of at least one information database service. These are commercial databases that aggregate vast amounts of public and private data, such as credit bureau information, utility records, and public records, to locate individuals. The search must be conducted using the securityholder’s taxpayer identification number or, if that is not likely to produce a result, their name.

Recordkeeping and Verification Requirements

Compliance with Rule 17ad-17 also imposes recordkeeping obligations. Reporting institutions must create and maintain records that document their efforts for every lost securityholder. This documentation serves as proof of compliance during regulatory examinations by the SEC. The records must be thorough enough to reconstruct the entire process for each individual case.

The required records must include:

• The securityholder’s name
• The date they were officially identified as lost
• The specific dates of each required search
• The particular information database or other search tool used for each attempt
• The results of that search, whether successful or not

These compliance records must be preserved for a period of not less than three years, with the records for the first two years kept in an easily accessible place. Reporting institutions are also required to maintain written procedures that outline their internal methodology for complying with the rule. This ensures that a consistent and compliant process is established and followed across the organization.