The US Securities and Exchange Commission (SEC) has proposed allowing public blockchains to form part of the official records used to determine who legally owns shares, while keeping regulated transfer agents responsible for the accuracy and control of those records.
The proposal, announced on 1 September, is the SEC’s first major revision of transfer-agent rules since regulations were introduced in the late 1970s and early 1980s. It would explicitly permit blockchain and other distributed-ledger technology to serve as a company’s master securityholder file, or as part of that file.
The move could take tokenised securities further into the systems that establish legal ownership, rather than restricting blockchain to a secondary record or digital representation of shares.
Under the proposed framework, one recordkeeping transfer agent would retain exclusive control of the official shareholder file. It would remain responsible for ensuring the record is accurate and secure, and for producing it to regulators when required.
SEC Chairman Paul Atkins said the changes reflected the increasing use of electronic communications and blockchain technology in securities offerings and share transfers. The wider review would also replace paper-based obligations with electronic recordkeeping standards and update reporting requirements relating to tokenisation and distributed ledgers.
Securitize, a registered transfer agent that already uses blockchain infrastructure for digital securities, said the proposal was consistent with the regulatory model it had previously advocated to the SEC. The company, a tokenised real-world asset manager, has more than $4bn in assets under management.
Securitize has argued that public blockchains should be integrated into securities recordkeeping, while transfer agents should continue overseeing the official record of ownership.
“Modernization should raise standards, not lower them,” Securitize said, describing the regulatory development and the growing use of digital securities as a tailwind for the sector.
The proposed rules would formalise an approach already indicated by SEC staff guidance. Registered transfer agents have been allowed to use distributed-ledger technology as the official master securityholder file without maintaining a separate off-chain duplicate, provided they comply with existing regulatory obligations.
Information such as wallet addresses, balances, ownership percentages and purchase details could be stored on-chain. Sensitive personal information could remain in separate systems.
The SEC’s draft would place that arrangement directly within the transfer-agent rules, but would not require firms to use blockchain. Transfer agents would be able to choose between conventional databases and distributed ledgers, provided their systems remain secure, up to date and accessible.
Regulators would also receive more information about tokenisation. Proposed amendments to Form TA-2 would require reporting on securities that use distributed ledgers, as well as the tokenisation agents and platforms involved.
A technology provider would not take on the transfer agent’s regulatory responsibilities simply because shareholder records were processed through its infrastructure.
The framework would also stop short of making corporate ownership entirely wallet-based. The master securityholder file would still have to contain a holder’s full name and contact details, including a physical mailing address.
A digital-wallet address could therefore be linked to a tokenised security as part of the identification information, but could not replace those traditional requirements under the draft rules.
The SEC is asking for views on whether that position should change. Its consultation includes questions about whether transfer agents should still be required to collect a shareholder’s full name and physical address, and what effect removing those requirements might have on other securities laws and market participants.
Commissioner Hester Peirce has separately suggested that email addresses or digital-wallet addresses could replace names and physical addresses in some circumstances to support on-chain securities trading.
The proposal therefore seeks to modernise the ledger used to record legal ownership without removing the identity framework surrounding it. Blockchain could become the authoritative infrastructure for recording share ownership, but the regulated transfer agent would continue acting as the link between on-chain positions and identifiable shareholders.
Comments will be due 60 days after the proposal is published in the Federal Register. As of 1 September, the SEC had not announced a fixed publication date.
Oluwapelumi writes about Bitcoin’s potential and covers subjects including DeFi, hacks, mining and crypto culture, highlighting what he sees as the technology’s transformative power.
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