The U.S. Securities and Exchange Commission (SEC) proposed a major update to its rules for transfer agents.
The proposal would update the rules to reflect how securities are now issued, recorded, and transferred, including the growing use of blockchain technology.
The SEC said its current transfer agent rules have not been significantly updated since they were first adopted in the late 1970s and early 1980s. Transfer agents are responsible for keeping official records of who owns securities and helping transfer those securities between companies and investors.
Focus on Transfer Agent Rules
The proposal aims to update existing rules and forms by removing one existing rule and creating two new rules. The changes are meant to support the wider use of electronic records and reflect the wider range of services that transfer agents now provide.
According to SEC Commissioner Mark Uyeda, it has been 40 years since the SEC last significantly updated its transfer agent rules. He also pointed out that technologies such as distributed ledger technology and tokenization have changed how transfer agents perform their work.
Most securities are now handled electronically instead of using physical certificates. Securities can also settle in one business day or faster. Because of these changes, the SEC is looking at whether the current rules still properly reflect how the securities market operates today.
The proposal is also intended to modernize the rules so that they can better reflect the current processes and operations of transfer agents, including electronic communications and blockchain technology. The SEC said the proposal would continue to support the safe and efficient functioning of the U.S. securities markets.
Blockchain and Tokenized Securities
One of the main parts of the proposal is how transfer agents would use blockchain and other distributed ledger technology. The SEC has previously allowed registered transfer agents to use distributed ledger technology as their official master securityholder file, as long as they meet existing requirements for recordkeeping, reporting, security, access, and examinations.
Under the new proposal, the SEC is asking for comments on whether there should be specific requirements when blockchain or other distributed ledger technology is used as the main record of securityholders or as part of the records.
This could provide more clarity for companies working with tokenized securities. Tokenization allows assets or securities to be represented through digital tokens, including through blockchain technology.
This shows how the SEC is considering how its rules should work as the securities market moves further toward electronic records and blockchain-based systems.
Reporting and Operational Requirements
The SEC is also proposing changes for transfer agents regarding their reporting and operational requirements. These changes include reporting on areas such as the handling of funds and securities and how transfer agents can complete certain services.
The proposal would also clarify requirements related to lost securityholders, the removal of restrictive legends, and documentation in agreements between transfer agents and their clients.
The changes are focused on making sure that transfer agents can continue to maintain accurate ownership records and protect investor rights while the technology used in the securities market continues to change.
The proposal comes more than a decade after the agency released a concept release in 2015 about modernizing transfer agent rules.
The latest proposal will be open for public comments for 60 days after it is published in the Federal Register. For now, the changes are only proposed and have not yet been finalized.
