SEC launches the largest reform in nearly half a century, with blockchain officially included in the transfer agent rules

The U.S. Securities and Exchange Commission (SEC) filed a Transfer Agent regulatory reform proposal on September 1 to significantly update the regulatory framework that has not seen major changes since the late 1970s. The plan would incorporate emerging technologies such as electronic communications, blockchain, tokenized securities, and artificial intelligence (AI) into the rules.

Transfer agents are a key piece of infrastructure in the U.S. securities market. They primarily maintain shareholder records and ownership records of securities, while also handling corporate actions such as stock transfers, dividend payments, and mergers and acquisitions. They also participate in the securities clearing and settlement process.

However, many existing rules were formulated in the 1970s, when paper records and traditional financial infrastructure dominated, creating a clear gap from today’s highly electronic securities market. As stocks, bonds, and funds gradually adopt blockchain, the traditional role of transfer agents has also begun to change.

SEC Chair Paul Atkins said that this proposal aims to simplify and modernize the relevant rules so they align with how transfer agents operate in practice today, including using electronic communications and blockchain technology during securities issuance and share transfer processes.

Blockchain can serve as an official record of holders, and wallet addresses may also be included in regulation

This reform is closely related to the rapidly growing market for “tokenized securities” in recent years. In January this year, the SEC issued a statement regarding tokenized securities, categorizing the relevant models into two main groups: issuer-led and third-party-led. In this framework, companies can directly integrate distributed ledger technology (DLT) into the shareholder register so that token transfers on the blockchain simultaneously represent the transfer of securities ownership.

This indicates that blockchain can become part of the main records used by securities holders and can also run in parallel with traditional off-chain databases. The SEC also emphasizes that, regardless of whether securities are issued in traditional form or in token form, they must comply with applicable federal securities laws.

The new transfer agent proposal further addresses this kind of structure. The SEC plans to update regulations related to electronic systems and certain traditional terms, and it also requires firms to report the number of tokenized securities for which they provide services. It further requires distinguishing between issuer-led and third-party-led tokenization models, as well as different types of securities such as stocks, corporate bonds, ETFs, funds, and municipal bonds.

Hester Peirce (Hester Peirce), who is soon to leave the SEC, also raised a key question: whether transfer agents in the future should still be required to collect the names and entity addresses of securities holders, or whether new types of identifiers—such as email addresses and digital wallet addresses—could be accepted.

If the relevant rules are ultimately adjusted, the way investors’ identities are recorded in the U.S. securities market may further shift toward an on-chain structure.

Smart contracts and AI are entering the market; the SEC also simultaneously requires strengthening cybersecurity management

Blockchain enables more real-time capabilities for securities transfers, but it also creates new regulatory risks. In its 421-page proposal, the SEC states that transfer agents handling tokenized securities, distributed ledgers, and smart contracts need to manage the integrity of blockchain data, the security of tokenized securities, and risks arising from different operating models for distributed ledgers. Firms that introduce AI or other automated technologies must also establish appropriate internal control mechanisms to ensure accurate descriptions of system capabilities and to effectively oversee automated processes.

Multiple firms have already combined transfer agent functions with blockchain technology, including Securitize, tZERO, and Injective. The traditional financial market is also rapidly moving into tokenization. For instance, Intercontinental Exchange (ICE), the parent company of the New York Stock Exchange (NYSE), recently announced a collaboration with tZERO to build the transfer agent, broker, and on-chain settlement infrastructure required for tokenized securities.

These developments gradually expand the role of transfer agents. In addition to managing traditional shareholder registers, they are also starting to connect securities issuance, on-chain ownership records, trading restrictions, and investors’ rights across key market functions.

SEC studies 24-hour trading in sync; U.S. stock market moves toward 24/7 operations

In addition to transfer agent reform, the SEC the same day also released the agenda for a 24-hour securities trading roundtable. The meeting is expected to be held on September 17 at the SEC’s Washington headquarters to discuss how the U.S. securities market should respond to the demand for 24/7 trading. Participating institutions include major market players such as NYSE, Nasdaq, Cboe, DTCC, State Street, Citadel Securities, and Robinhood. The meeting will cover issues such as overnight market surveillance, the price discovery mechanism at the close, clearing and settlement, and how 24/7 systems will handle maintenance arrangements.

The cryptocurrency market has long maintained a 24/7 trading model with year-round operations, while traditional securities markets are constrained by trading hours, clearing, and banking infrastructure. As tokenized securities develop, blockchain’s ability to transfer instantly and operate around the clock also prompts regulators to re-examine existing market structures.

The SEC has previously pointed out that blockchain has the potential to improve the efficiency of securities trading, clearing, and collateral management, and that DeFi smart contracts have already demonstrated the possibility of trading financial assets around the clock. When current U.S. federal securities laws were drafted, they did not foresee blockchain and smart contracts taking on market functions such as transfer agency, securities trading, and clearing.

This transfer agent reform is still in the proposal stage. The public comment period is 60 days, and the final rules may still be adjusted based on market and public feedback. At the same time, the SEC is also pushing forward regulations for tokenized securities, transfer agent reform, and discussions on 24-hour trading. The regulatory framework for the U.S. securities market is gradually adapting to changes brought by on-chain finance and 24/7 trading.

“Goodbye to half a century of outdated paper rules! SEC proposes amendments to transfer agent regulations and embraces the blockchain era.” This article was first published on “Crypto City.”