The US Securities and Exchange Commission has proposed its first significant update to transfer-agent rules since the late 1970s, with the changes aimed at bringing the framework in line with blockchain, tokenised securities and other emerging technologies.
The proposals, announced on Tuesday, would revise rules governing transfer agents, which maintain official records of securities ownership and manage corporate actions including mergers and dividend distributions. They also have an important role in the clearing and settlement of securities transactions.
SEC Chair Paul Atkins said the proposed changes would bring the rules closer to the way transfer agents operate today.
“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,” Atkins said in a statement.
According to an SEC fact sheet, the amendments would modernise some terminology “in light of technological advancements” and revise requirements relating to the use of electronic systems.
The proposal comes as transfer agents increasingly work in electronic markets and with technologies including tokenised securities and artificial intelligence. The SEC said some market participants were examining blockchain-based systems as a way of maintaining records showing who owns securities.
The agency’s 421-page rule proposal also addresses the risks involved in using distributed ledger technology, smart contracts and automated systems.
“Transfer agents interacting with tokenized securities, distributed ledger technologies, and smart contracts must increasingly manage risks relating to blockchain data integrity, security of tokenized securities, and distributed ledger operational models, while those adopting AI or automated technologies must ensure proper controls, accurate representations of system capabilities, and effective oversight of automated processes,” the SEC said.
Injective recently became a transfer agent registered with the SEC. The company says that status gives it a regulated framework for recording ownership of tokenised assets and tracking transfers between holders.
Securitize and tZERO are among the other companies registered as transfer agents.
SEC Commissioner Hester Peirce, who is due to leave the agency in the coming weeks, said she was pleased the proposal had been issued before her departure.
“I am pleased to support it and, although I will not be here to assist, I will be cheering the Commission from the outside as it finalizes the rule,” Peirce said.
Interested parties have 60 days to submit comments on the proposed changes. The SEC will consider those responses before deciding whether to adopt a final rule.
The proposal reflects the growing use of digital systems in securities markets, where firms are exploring blockchain networks, tokenisation and artificial intelligence for record-keeping and operational processes. Under the proposed framework, transfer agents using those technologies would be expected to maintain appropriate controls, ensure their records are accurate and oversee automated systems effectively.
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