SEC seeks to update its 1970s-era transfer agent rules for the blockchain age

The U.S. Securities and Exchange Commission is seeking to update its rules for transfer agents to keep pace with new technology, including blockchain and tokenization.

On Tuesday, the SEC proposed changes to its transfer agent rules, which it says have not been significantly updated since the rules were proposed in the late 1970s. Transfer agents serve as recordkeepers for securities, maintaining ownership records and handling corporate actions such as mergers and dividend distributions. They also play a key role in the clearing and settlement process.

"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," said SEC Chair Paul Atkins in a statement.

The rule changes would "modernize" certain terminology "in light of technological advancements" and update rules on the use of electronic systems, according to a fact sheet.

AI, tokenization advances

The changes come as transfer agents increasingly operate in electronic markets and alongside emerging technologies such as tokenized securities and artificial intelligence. Some market participants are exploring blockchain-based systems for maintaining securities ownership records, the SEC said.

"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 agency said in its 421-page rule change.

Injective recently became an SEC-registered transfer agent, which it says gives it a regulated way to keep track of who owns tokenized assets and how those change hands. Other firms, including Securitize and tZERO, are also registered transfer agents.

SEC Commissioner Hester Peirce, who will be at the agency for the next several weeks, said she was happy to see the rule change before leaving.

"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.

Comments are due in 60 days.