Time to Transfer: Statement on Proposed Transfer Agent Rules

I am delighted that the transfer agent rule proposal is seeing the light of day before I leave the Commission. Thank you to Jamie Selway, Elizabeth Fitzgerald, Moshe Rothman, and the rest of the staff in the Division of Trading and Markets and to others across the Commission, including staff in the Division of Economic and Risk Analysis and Office of General Counsel, for getting this proposal over the finish line.

The transfer agent proposal has been rattling around the Commission corridors for a long time. In June 2015, Commissioners Luis Aguilar and Dan Gallagher noted the urgent need for updates to the transfer agent rules:

The Commission has not significantly revised its transfer agent rules in almost 30 years, a period that has witnessed sweeping changes in the securities industry, particularly in transfer agents' activities. As a result, the Commission's anachronistic transfer agent rules and the services that the nation's . . . transfer agents provide today are out of sync.1

The Commissioners recommended moving immediately to a proposal, rather than issuing a concept release, as the Commission did later that year, because "[a] lengthy delay in updating the Commission's transfer agent rules would be bad for the markets, investors, and issuers."2 More than a decade and many additional "sweeping changes" later, the Commission is finally heeding the Commissioners' call and issuing a proposal. 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.

Transfer agents perform a critical role in today's markets. They maintain the official record of ownership of an issuer's securities and facilitate the issuance, cancellation, and transfer of securities. When the Commission first adopted the rules governing transfer agents, holding paper share certificates was the norm. Now few paper certificates exist, and transfer agents and other market participants are looking to a future in which many shares will be tokenized. Our rules need to reflect the new realities of how shares are held and transferred.

In addition, we need to empower transfer agents to do a better job in combatting microcap fraud. To this end, the proposed rules include requirements for registered transfer agents to develop compliance policies and procedures and to refrain from improperly removing restrictive legends from shares. The proposal takes a balanced approach: it requires transfer agents to have a reasonable basis for their actions but does not ask them to take on a role that is outside their mandate.

I look forward to comments on all aspects of the proposal. Markets, technology, and regulation have changed so much since we issued our concept release, let alone since the rules currently on the books were written. Public comment, therefore, will be essential to enabling us to get these amendments right and sufficiently flexible to accommodate future developments. I am interested in public feedback on the following questions, among others in the proposing release:

1. The role of transfer agents may change over time. As securities move onchain, do you anticipate that transfer agents will perform more tasks or fewer? How should we adapt our rules to accommodate potential changes in the role of transfer agents?
2. Are there transfer agent rules, either in their current or proposed form, that should be adjusted to help facilitate onchain trading of tokenized securities? For example, should transfer agents continue to be required to collect names and physical addresses of securityholders or should the rule allow other identifiers, such as email and digital wallet addresses, to be collected instead?
3. Are the proposed amendments to Rule 17ad-17 appropriate given the recent adoption of inactivity standards in state escheatment laws and the increased use of electronic methods of communication and payment? Do these amendments properly protect investors without imposing unreasonable burdens on transfer agents and broker-dealers?
4. Are the proposed additional requirements, such as the requirement to disclose certain service providers on the Form TA-2, appropriate in light of the role played by transfer agents and what the Commission requires (or does not require) of other registrants?

• 1Commissioner Luis A. Aguilar and Commissioner Daniel M. Gallagher, Statement Regarding the Need to Modernize the Commission's Transfer Agent Rules (June 11, 2015) (citation omitted), available at https://www.sec.gov/news/statement/modernize-sec-transfer-agent-rules.html.
• 2Id.