Key Highlights
- The SEC has proposed amendments to rules governing registered transfer agents.
- The existing transfer-agent framework has not been substantively updated since the late 1970s and early 1980s.
- The proposal addresses electronic recordkeeping, communications and blockchain technology.
The U.S. Securities and Exchange Commission (SEC) has proposed changes to the rules governing registered transfer agents, including provisions addressing electronic records and blockchain technology used in securities transactions.
The proposal, announced on September 1, would revise rules and forms covering transfer agents, which maintain records of securities ownership and process changes to those records.
The SEC said the existing framework has not undergone a substantive update since the late 1970s and early 1980s, despite changes in how securities records are maintained and transferred.
SEC revisits transfer agent rules
Transfer agents maintain records of securities ownership and handle administrative processes such as recording transfers and changes in ownership.
The SEC proposal would amend several existing requirements, introduce new provisions, remove one rule and revise regulatory forms used by registered transfer agents.
The changes address areas including recordkeeping, communications and the use of electronic systems in transfer-agent operations.
The proposal would update the existing framework rather than establish a separate regulatory category for technology-based transfer agents.
Blockchain included in proposed framework
The SEC’s explanation of the proposed amendments specifically addresses blockchain technology.
SEC Chairman Paul S. Atkins said the proposal would account for technologies being used in securities markets.
“This proposal would streamline and modernize the Commission’s rules to reflect transfer agents’ current processes and operations, including the use of electronic communications and blockchain technology in connection with securities offerings and the transfer of shares.”
The proposal does not establish a standalone regulatory category for blockchain-based transfer agents. Instead, it would incorporate references to blockchain technology into the rules governing registered transfer-agent activities.
This could affect firms using distributed ledger technology to maintain securities ownership records or support transfers, depending on the final rules adopted by the agency.
Existing rules date back decades
The SEC’s transfer-agent framework was developed before electronic recordkeeping and distributed ledger technology became part of securities-market infrastructure.
The agency said the rules have not been substantively updated since the late 1970s and early 1980s.
Jamie Selway, Director of the SEC’s Division of Trading and Markets, said changes in technology and financial markets provide a reason to review older requirements.
“As technology changes and the competitive marketplace evolves, good government requires revisiting legacy rules and regulations.”
The proposal therefore focuses on modifying the existing framework rather than replacing it.
Proposal comes during broader SEC rule review
The transfer-agent proposal is separate from the SEC’s crypto-specific rulemaking, although it comes as the agency reviews several areas of securities regulation.
In June, the SEC proposed amendments to Regulation NMS, which governs parts of U.S. equity-market structure.
The agency has also proposed changes involving digital assets and capital raising, including proposals covering two capital-raising exemptions and a conditional safe harbor. One of the proposed exemptions would cover certain offerings of up to $75 million.
Those initiatives address different areas of securities regulation and are not part of the transfer-agent proposal.
The common issue is that the SEC is reviewing rules that were developed before many of the electronic systems and distributed ledger technologies now used in financial markets.
Public comment period will follow
The SEC’s proposed release has been published on its website and is expected to appear in the Federal Register.
The proposal will be open for public comment for 60 days after its publication in the Federal Register.
Transfer agents, issuers, securities firms and other market participants will be able to submit comments during that period.
The proposal does not immediately alter the rules currently applicable to registered transfer agents.
What the proposal could mean for blockchain-based transfers
The practical impact on firms using blockchain will depend on the final amendments adopted by the SEC.
Distributed ledger technology can be used to maintain ownership records, record transfers and support securities settlement. Bringing references to the technology into the transfer-agent rules could provide a clearer basis for assessing those activities under the existing regulatory framework.
However, the proposal does not by itself approve any particular blockchain-based transfer system or establish that blockchain-based securities transfers will receive different regulatory treatment.
The agency will have to consider public comments before deciding whether to adopt the proposed changes.
SEC starts review, but rules have not changed yet
The proposal brings blockchain technology into an area of securities regulation that has remained largely unchanged for decades.
For registered transfer agents, the immediate effect is limited because the existing rules remain in place during the proposal and comment process.
The significance of the changes will depend on the final language adopted by the SEC and how the agency applies the revised requirements to electronic and blockchain-based recordkeeping and securities transfers.
For now, the SEC has opened the process for updating the transfer-agent framework, with public comments expected to shape any final amendments.
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