On September 1, the SEC proposed to modernize the rules and forms that apply to registered transfer agents, marking the first substantive update to the federal transfer agent regulatory framework since the rules were initially adopted. Transfer agents perform functions central to the national clearance and settlement system, including facilitating the issuance, cancellation, and transfer of securities and maintaining the official record of securityholder ownership.

The proposal would, among other things, amend existing registration and annual reporting requirements on Forms TA-1 and TA-2, including extending the effective date of registration from 30 to 45 days after filing and requiring amended Form TA-2 filings within 60 days of discovering that previously filed information was materially inaccurate, incomplete, or misleading when filed. The proposal would update rule terminology and recordkeeping provisions to reflect electronic and blockchain-based recordkeeping and the use of uncertificated securities; notably, the proposal would permit a transfer agent to “utilize a blockchain or other distributed ledger technology as its master securityholder file, or a component thereof,” but would not require it. The SEC would also align turnaround and processing standards with the current settlement cycle and increase the threshold for imposing limitations on expansion from 75 to 95 percent. The existing safeguarding rule would be reframed as a “comprehensive risk management rule,” under which transfer agents would be required to establish written policies and procedures to protect securities and funds, identify and mitigate material operational risks, maintain issuer, securityholder, and other third-party funds in a “for the benefit of” bank account separate from the transfer agent’s other accounts, and establish business continuity plans.

The proposal would introduce two new rules: (i) proposed Rule 17ad-30, which would require registered transfer agents to establish, maintain, and enforce written compliance policies and procedures; and (ii) proposed Rule 17ad-31, which would establish requirements for the placement and removal of restrictive legends and would require transfer agents to refrain from facilitating unregistered securities transactions unless they have a reasonable basis to believe the transaction does not violate or is not part of a chain of transactions that would violate Section 5(a) of the Securities Act. The proposal would also rescind Rule 17ad-4, which provides certain exemptions from turnaround, processing and recordkeeping requirements that the SEC determined are no longer necessary given technological advances. Additionally, the proposal would require transfer agents and broker-dealers to provide notifications to inactive securityholders. Comments are due by November 3.