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Eliminating Operational Risk at a Transfer Agency
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A DAY IN THE BACK OFFICE:
Eliminating Operational Risk at a Transfer Agency

May 4, 2011
By Chris Kentouris

CANTON, Mass. -- Transfer agents service the accounts of registered shareholders – investors known to corporations by their actual names. Among their duties: to issue stock certificates to new investors, send out dividend checks and administer dividend reinvestment programs.

Of course, transfer agents must also respond to written, emailed or telephone inquiries from shareholders who don’t understand their statements, cannot find their checks and want to change their address.

This sounds like a dull administrative job. But that’s not the case, in reality. Just spend several hours in the 185,000-square-foot processing and data hub of one of the U.S. largest transfer agents—Computershare – in Canton and it quickly becomes apparent that a combination of technology and clear business procedures are required to ensure accuracy. And satisfy both corporations and their investors with the results.

Nonstop Operations--And Glitches

For starters, there is the nonstop nature of the task. Computershare, true to its name, has to keep the mega-facility for storing and sharing information via computer running at all times, without any interruption. That means redundant data servers, data providers and backup generators. There also is a backup site at an undisclosed location in Massachusetts. This operates on a separate power grid from the Canton facility. Data is downloaded on a synchronous basis, through out the day. Not batch or end-of-day.

Next up: Preventing processing glitches. “Our goal is to exceed the Securities and Exchange Commission’s minimum requirements and ensure the highest level of service for shareholders and corporations,” says Jay McHale, president of Computershare’s equity services unit.

The potential errors include not fulfilling a investor’s request on time or doing so incorrectly by, say, updating an account with the wrong address or name. Even more serious would be giving confidential information on a shareholder account to an unauthorized individual.

The SEC mandates that a transfer agent must complete 90 percent of so-called routine transfers– changes in the name on an account for which all of the paperwork is in order – within three days after the request is made. While the regulator does not give transfer agents a specific timetable when to buy or sell shares in a dividend reinvestment or direct purchase or sale program, the industry standard is within 24 hours at most, to avoid minimize the risk of market fluctuation.

Eliminating mistakes naturally prevents Computershare from being hit with regulatory fines, compensating investors for any financial losses or just a loss of reputation, which could cost it a corporate account.

Computershare doesn’t disclose what it charges corporations, but transfer agents typically earn basic annual administrative fee and additional fees for responding to shareholder calls and tabulating investor votes to name a few. The more registered shareholder accounts a transfer agent services, the more it earns.

Although Computershare won’t say how many shareholder accounts it services it vies with Bank of New York Mellon as the U.S. top transfer agent; it says it has nabbed about 36 percent of the companies represented in Standard & Poor’s 500 Index.

Handling "Old-Fashioned" Correspondence

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