SEC Proposes Broad Update to Decades-Old Transfer Agent Rules With Blockchain Nod

The SEC wants to rewrite its transfer agent rulebook for the first time in nearly half a century. The proposal runs 421 pages and would explicitly make room for blockchain-based recordkeeping, tokenized securities and automated market infrastructure.

Those rules date to the late 1970s and early 1980s, when the industry still ran on paper certificates and manual ledgers. The agency said in a fact sheet accompanying the proposal that it intends to modernize the framework “in light of technological advancements.” Comments are due 60 days after publication in the Federal Register.

What that means in practice: the SEC is building an on-ramp for blockchain-native transfer agents to operate inside the U.S. securities framework, rather than treating distributed-ledger recordkeeping as an awkward exception to paper-era rules.

Transfer agents serve as recordkeepers for securities. They maintain ownership records, handle corporate actions such as mergers and dividend distributions, and play a role in clearing and settlement. The proposal would update requirements covering registration, recordkeeping, safeguarding and securities transfers while introducing rules aimed at risks from increasingly digital and automated market infrastructure.

“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,” SEC Chair Paul Atkins said in a statement.

The SEC noted that market participants are “actively seeking to bring blockchain-native, or ‘onchain’ transfer agents into the U.S. market,” pointing to models for blockchain-based recordkeeping, tokenized fund administration and cross-chain interoperability. The existing framework, the agency said, does not adequately address those developments, particularly risks involving cybersecurity, operational resilience and the safeguarding of securities and investor records.

“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,” the SEC wrote in the 421-page rule change. Agents adopting AI or automated technologies must ensure proper controls, accurate representations of system capabilities and effective oversight of automated processes.

Under the proposal, transfer agents would face expanded reporting requirements and new compliance standards. Those include rules governing restrictive legends on securities and the use of third-party service providers.

SEC Commissioner Hester Peirce said she would support the proposal but indicated she would not remain at the agency to see it finalized. “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, adding she would be at the agency for “the next several weeks.”

That disclosure is new. The overhaul also arrives as part of a broader push to simplify SEC rules. In May, the agency proposed allowing companies to opt for semiannual reporting, simplifying its filer classification system and expanding access to streamlined registered securities offerings. Last week, the SEC sent a proposed overhaul of custody rules for investment advisers and investment companies to the White House for review, with potential changes covering how firms hold crypto assets for clients.

Law firm Cahill Gordon & Reindel, in a client alert, characterized the SEC as “on a mission to simplify its rules.”

The proposal lands as on-chain securities infrastructure is already taking shape. Injective recently became an SEC-registered transfer agent for tracking ownership of tokenized assets, joining registered transfer agents Securitize and tZERO, the latter in an infrastructure partnership with NYSE parent Intercontinental Exchange.

What remains unclear is whether the proposal prescribes specific technical standards for blockchain-based recordkeeping or leaves the requirements principles-based. The comment period, and the eventual final rule, will determine how much latitude on-chain transfer agents have in practice.