By Brian Jones
Comments on the SEC’s proposed overhaul of the transfer agent rules are due November 3. Most of the coverage has focused on blockchain, since the proposal would allow, but not require, a distributed ledger to serve as a transfer agent’s official record of ownership. But the proposal reaches much further than that. Here are three aspects to think about:
- Fund transfer agents would lose a long-standing exemption. Transfer agents for open-end fund shares have been exempt from some processing and recordkeeping requirements since 1977, and the proposal would end that exemption, replacing it with a one-business-day processing standard. In a world of NAV pricing, as-of corrections, omnibus and subaccounting arrangements, that is a real operational change. It has drawn far less attention than tokenization.
- The record has to stay under the transfer agent’s control, wherever it lives. A recordkeeping file could include a distributed ledger, but it would have to remain under the transfer agent’s exclusive control. The practical question is whether the transfer agent, not a platform or protocol, can correct, reconcile, and produce the complete record when it needs to.
- Records have to be able to move. A transfer agent that stops servicing an issue would have 15 calendar days to deliver its key records to the issuer or its designee. On a conventional system, that means handing over files. On a ledger, it can also mean handing over control.
We’ve built our recordkeeping and subaccounting platforms for same-day processing in a NAV-priced environment. Envision DTX, our digital assets and fund tokenization platform, keeps the transfer agent in control of the record both on and off chain, including the ability to correct entries and transfer control cleanly. If you’re thinking through any of these questions, we’d be glad to compare notes.