November 27, 1996 Mr. Jonathan G. Katz, Secretary Securities and Exchange Commission 450 Fifth Street, NW Washington, DC 20549 Re: File No. S7-21-96 Proposed Rules 17Ad-17 and 17a-24, Addressing Lost Security Holders Dear Mr. Katz We have reviewed your Proposed Rules, 17Ad-17 and 17a-24 and appreciate this opportunity to provide the Commission with comments. CapitaLink (formally Capital Tracers) is a full service provider of unclaimed property services to financial intermediaries, corporations and insurance companies. Among the services we have provided over the past 12 years is the location and reactivation of lost securityholders. CapitaLink fully supports and shares, in its own endeavors, the goals of the SEC proposed rules which is to limit and locate lost securityholders. CapitaLink's experience provides credibility to the following comments. Proposed Rule 17Ad-17: Require transfer agents to conduct searches in an effort to locate lost securityholders It has been our general experience that when calling on transfer agents most already voluntarily have in place some type of derivative of Rule 17Ad-17. Each employs the most efficient and effective timely combination of the proposed rules according to their unique situation. For example, many of the top transfer agents, which combined, have approximately 90% of all master securityholder files, code a securityholder on their databases as "lost" after two first class mailing to the address of record are returned as undeliverable. In many cases this happens within three months. Once coded, searches are done within the next three to six months, without charging the securityholder, via phone, using national phone discs, or by using a social security number to search on-line databases. If a securityholder is found a verification letter is then mailed to the new address. These efforts are pursued in addition to the compliance mailings and advertisement required by most states prior to escheatment. When the securityholder is still not located through these cursory attempts other advanced search methods may be followed. One of which, after agreement between the issuer and the agent, could be contracting the services of a qualified professional search firm. By this time approximately nine months to a year has elapsed, giving a securityholder ample time to have notified the agent of their new address and allows enough lead time to locate securityholders through time consuming advance searches prior to escheatment. A well respected transfer agent has been able to return approximately $20 million over the last six years to its lost securityholders using a similar process as described above. In essence the timely combination of the steps embodied in these proposed rule greatly minimize the number of lost shareholders that eventually are escheated to the states. However, each entity employs its own effective timely combination based on their unique shareholder base, internal processes, and economic condition. What is important to emphasize, therefore, are universal guidelines and processes that have been proven to be effective by some practitioners and give each entity the flexibility to adopt some or all of the proposed rule. To require all transfer agents to adopt a particular combination with a set sequence will not provide the flexibility that each needs to obtain the desired objective. The setting of guidelines will provide a level of industry standards in achieving the SEC's goals of requiring transfer agents to search for lost securityholders while minimizing the adverse impact that rigid rules may have on some transfer agents. A precedent for this method of setting industry standards can be found in the Stock Transfer Association's security transfer guidelines. Each agent is allow the flexibility of incorporating all or certain features of the STA's guidelines to match their own processes and exposure tolerance. As public awareness of unclaimed property continues to increase those entities which are proactive in the their responsibilities, versus those that are not, will be the ones rewarded by the market. Commenting on the specific sections: II.A. Transfer agents should have the flexibility to reject a transfer request when an address is invalid or process the item and then contact the presenter for clarification. II.B. Each transfer agent employs its own timely combination of the proposed steps in attempting to locate lost securityholders. II.C.1 Transfer agents should have the flexibility to code an account "lost" after receiving as undeliverable any two consecutive or combinations of dividends, certificates, checks, or statements which are mailed first class. This will provide a speedier identification of lost securityholders while minimizing their exposure. II.C.2 Transfer agents should have the flexibility to conduct automated searches using TIN or Name for assets valued greater than $100.00. This should be done at least three but not more then twelve months after an account has been coded lost. II.C.3 Requiring a performance measurement in accessing technology and results may be subject to interpretations. In addition, an agent may be extremely proactive an still not be able to locate many securityholders on their own. II.C.4 Transfer agents should have the flexibility to use professional search firms at their discretion. There are instances when a securityholder's best interest is served by contracting a professional search firm earlier than proposed. Specifically, an estate administrator may become aware of an asset that has been considered lost well after the estate has been closed. The cost of reopening an estate in the courts can be grater than the value of the asset. In locating the administrator prior to this occurrence, the search firm and the agent are proving a valuable service. A service that the administrator would be willing to pay for a fair fee. Also, in the cases of foreign accounts, the use of a searchable database, as proposed, will be inadequate because these databases do not list foreign securityholders. Professional search firms have international resources at their disposal. II.C.5 The proposed rule is appropriate. II.C.6 The proposed rule of maintaining the date an account is considered lost, on the agent's database, is appropriate. Transfer agent currently have this in place. However, maintaining search dates will be a costly enhancement. Proposed Rule 17a-24: Allow the Commission to gather data related to lost securityholders and provide it to information distributors or others. CapitaLink supports the creation of a national database. A secured publicly accessible database would greatly benefit the securityholders and their heirs, eliminate discrimination of lower value accounts, while minimizing the impact on internal processes and cost to its participants. However, in a time when government is reducing its impact in the private sector, a government run database is not the optimum alternative. In addition, becoming a participant should be a voluntary process. It stands to reason that the market will reward those entities which become participant versus those that do not. Imagine a securityholder who inquires into the database and finds nothing only to see their name shortly thereafter listed by a state in the newspaper. The negative public relations exposure is to great given the minimal costs of being a participant. As 17Ad-17 shows, the location process is currently a one way street. It is the holder of the "lost" account or a designee attempting to locate the securityholder. A national database will allow the process to become a two way street by providing the public with a single point of access where they can to find their own lost assets. This is made possible today because of the technological advances in database administration, the Internet, and communications technologies. The national database could be access via computers as well as telephones, 24 hours a day, seven days a week. In effect, the database will empower the public to share in the responsibility of minimizing lost shareholders. It is for this crucial aspect that a privat ely managed database is the optimum alternative. A private entity will have the incentive and the funds to ensure that the database becomes nationally known. This could be done through large scale consumer advertising, public relations and word of mouth. Given its current role, the Commission may not be able to employ these tactics to their fullest potential. As a result, limiting the utility of the database. A public database with no public exposure is no public database at all. The database will also allow its participants to list all accounts regardless of value. Currently, agents do cursory searches for accounts based on a de minimus threshold, usually set between $100.00 and $200.00. The de minimus threshold for advanced searches, such as those provided by professional search firms, is usually set at $1,000.00. These practices although consistent with business realities do have a discriminatory aspect to them. What is done for lost securityholders whose asset value do not meet these thresholds? The database will give this population the same level of opportunity and service. As a side note, the majority of lost securityholders have assets valued less than $1,000.00. The process of maintaining and updating this database is relatively simple. An agent should list at least once a year their lost securityholders. Some may find that they are better served by refreshing the data more often - monthly, quarterly, etc. - depending on the results they realize from the service. All that would be required is an output, based on a simple layout, in their preferred medium, to be uploaded into the database. This could be done electronically, tape, disks, etc. Hardcopy reports should be discouraged. In our own database, iFast, we find that the cost to our participants for this process is negligible and most allocate the cost across their entire client base. In the occasions that an agent mergers or becomes insolvent, the acquiring entity would have to provide timely information regarding the change in status. Again, in our database, for example, all that would be needed is a new telephone number for the lost securityholder to contact the new holder of the asset. In other instances, maybe an indemnity by the provider of the database would suffice in limiting agent exposure caused by outdated and inaccurate information. On the issue of possible exposure to fraud arising from a national database we believe that the listing of the entire social security number increases such possibilities. Likewise, the listing of the asset and its value. However, a combination of partial social security number, address and name along with proven security prevention technologies provides the best deterrent while increasing the probabilities of matches. One simple technique that reduces fraud is having the criteria for searching entered by an inquirer instead of having the inquirer scroll through a list. Another solution to reducing exposure to fraud could be the establishment of a general insurance plan in which participants can become members. This plan could be modeled after the Medallion Guarantee program establish to protect and facilitate the transfer of securities. It must be emphasized, in the effort to minimize exposure we must not limit unnecessarily the probability of a match. Social Securities numbers alone is too limited a criteria. It will be the high probability of matches that will ultimately determine the success and utility of this database. Otherwise, large occurrence of incorrect referrals will frustrate the securityholders as well as the participants. A true national database of lost asset holders would not only need to include pre-escheated security related assets but all types of lost assets - vendor checks, security deposits, insurance claims, etc.- as well as those already escheated. However, such a database may be beyond and responsibility of the Commission. Here again, a private entity will be better able to perform this role. CONCLUSION: CapitaLink understands the need for some guidelines (17Ad-17) for transfer agents as well as all recordkeepers and support the spirit of the proposed rule. The establishment of guidelines will provide recordkeepers with the greatest flexibility in employing them in their optimum timely combination. To require all recordkeepers to adopt a particular combination with a set sequence does not take into account individual circumstances. Since most entities already perform some of the proposed rules, mandates are unnecessary and inefficient. We strongly agree with the establishment of a national database (17a-24). However, the endeavor would be best served by a private entity rather than by a government agency. The resources necessary to make this database a success are beyond the Commission's mandate and would entail unnecassry costs. Our development of a similar database provides evidence of our commitment to this concept. Furthermore, our database, iFast, is proof that a secure national database of lost securityholders can be developed with a high degree of probable matches without undue risk. The result of which is a high utility service to both the public and its participants. We once again thank you for the opportunity to comment on this proposal, and would be glad to further discuss our suggestions with your staff. Respectfully Submitted, Gaston B. Alvaro Executive Vice President P.S. A hardcopy of the above is being sent regular mail to your attention.