Ushering in a Myriad of changes – Part 1

By

A Swing

For most of my career, reading the transfer agency rules has meant shaking my head and wondering why those in charge at the Commission had not addressed the clearly outdated rules. On September 1st, the SEC released proposed rules to modernize a rulebook we haven't taken a swing at in nearly forty years, so I read the whole thing expecting the head-shaking to stop. However after looking through the voluminous document it appears that they are just attempting to do is make an antiquity of a document structurally work with the markets as they now exist. Instead, they’re taking the lackadaisical approach to redefining the work I’ve done for years, with hopes it can adequately constrain and regulate the direction the markets are taking.

First, there is a proposed rescission of 17ad-4, which exempts small agents from the turnaround requirements of 17ad-2. I’ve always been perplexed by this particular exemption; at no time in my career would I ever contemplate a situation whereby this would be needed. Perhaps simply requiring them to adhere to the current 72-hour turnaround would be proper, without the new proposed rules.

The proposed rules also spend time clarifying 'authorized securities.' Stripped down, it's the corporate law definition straight out of the Articles of Incorporation, the same one I first met in an undergraduate business law class in the nineties. It has not changed in practical terms since, and it does not need to. Every set of articles I've ever been handed to set up an issuer states the authorized share total. Nobody in this industry is confused about it, and if some are, that's a training problem, not a rulebook problem.

Another great example of this is later in the proposed rules wherein they touch on 17ad-6(a)(8) which requires transfer agents to “make and keep” documents supporting their engagement by an issuer and their capacity. The common sense portion of this is that the agent themselves is required to create and maintain such documentation. As we all know however in the age of consolidation many agents persist in the idea that they can hang onto any client acquired during an acquisition regardless of their desire to leave. As the current agent they too should have to “make and keep” documentation of their contractual obligations to an issuer.

And a Miss

It seems though that with the proliferation of alternatives to standardized securities on the register we should perhaps take a more sensical approach and understand the potential need for very unique, in depth, and focused regulations as it relates to tokens.

With tokenized assets we have a myriad of unique issues that have yet to be fully assessed or fleshed out which are extraordinarily concerning though. I’ve yet to hear any of the “token bros” fully flesh out the logistics of dividend distributions, affiliate shareholder registrations, proxy voting, or heaven forbid escheat and abandoned property. Many of the portals address some of these points, but none of them have full embraced the depth of the compliance well they have to dig.

For that reason the best approach would have been for the commission to understand that there are so many new facets to Transfer Agents since the last revisions decades ago that there was truly no way to simply update the rules and have them all encompassing. These proposed rules were an excellent time to propose an entirely new form of Transfer Agent registration with far more modern rules, and far more stringent guidelines.

                Instead of that we got a swing and a miss…

Disclosure: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of West Coast Stock Transfer Corp. or any of their respective affiliates. This article is provided for general informational and educational purposes only and does not constitute investment advice, a recommendation, an offer to sell, or a solicitation of an offer to buy any security, financial product, or investment strategy. The information presented is believed to be reliable but is not guaranteed as to its accuracy, completeness, or timeliness. Any forward-looking statements or opinions are subject to change without notice.

Author Bio: Eddie Tobler is an issuer and shareholder focused professional with over two decades of experience in Corporate Actions, governance and shareholder communications. Specializing in Community and Regional Banking with an emphasis on banks transitioning to the public markets, as well as those involved in M&A activity.