SEC Proposes Updates to Transfer Agent Rules

On September 1, the Securities and Exchange Commission (SEC) proposed amendments to the rules and forms that apply to registered transfer agents. The proposal would change registration and annual reporting requirements for transfer agents, modernize current rules in light of technological advancements, and establish new requirements related to turnaround, risk management, and inactive securityholders, among other changes. The Commission’s proposal specifically contemplates the emergence of on-chain transfer agents and tokenized securities; but is drafted to be technology-neutral so that it can accommodate both traditional entry systems and distributed ledger technology recordkeeping.

The creation of Rule 17ad-30 would require every registered transfer agent to establish, maintain, and implement a written compliance program reasonably designed to achieve compliance with the federal securities laws. The compliance program will need to be reviewed and approved by its board (or other similar governance structure), at least annually. In addition, the proposal puts forth Rules 17ad-2 and 17ad-10 which would move core transfer and record-posting functions to a one-business-day framework tied directly to the standard settlement cycle.

According to a client alert from Morgan Lewis issuers, investment companies, broker-dealers, service providers, and other market participants may wish to evaluate how the Proposal would affect their existing processing, recordkeeping, safeguarding, and compliance practices.

Click here to read the Commission’s proposal.

Click here to read a client alert covering the proposal from Morgan Lewis.