SEC crypto regulatory proposal opens the door to blockchain equity records

Key Insights

The U.S. Securities and Exchange Commission's cryptocurrency regulation proposal could make blockchain an official ownership record.

Transfer agents may have to report tokenized assets and the blockchain platform used.

With the development of tokenized securities infrastructure, the U.S. SEC's rules are expected to modernize regulations.

SEC cryptocurrency regulation goes deep into U.S. securities infrastructure

The U.S. Securities and Exchange Commission (SEC) has proposed a comprehensive modernization rule aimed at regulating registered transfer agents, thereby pushing cryptocurrency regulation further to the heart of the U.S. securities infrastructure.

The September 1 proposal would update rules that have had little substantive changes since the late 1970s and early 1980s. The proposal covers electronic communications, digital record-keeping, tokenized securities, distributed ledger technology, risk control, and transfer agent reporting.

One of the most relevant changes related to tokenization is allowing transfer agents to use distributed ledger technology in master security-holder files. The file remains an authoritative record of the registered owner, rather than allowing the blockchain to automatically gain legal status.

Cryptocurrency regulation proposal updates transfer agent rules

The proposal would amend existing rules and forms, abolish one rule, and introduce additional requirements. It also reflects the widespread use of electronic record-keeping and communications in the transfer agent business.

Jamie Selway, director of trading and markets, said that as technology changes, regulators must revisit traditional rules. He called the cryptocurrency regulation proposal another step in Chairman Atkins 'efforts to update the regulatory framework.

Blockchain record-keeping is at the heart of an important change in the plan. Registered transfer agents can use a distributed ledger system to record ownership and transfer securities.

The company will report the number of tokenized securities it serves and identify the blockchain platforms that support these records. This reporting requirement will provide the SEC with more details on the use of blockchain among registrars.

The U.S. SEC has posted the proposed release on its website and plans to publish it in the Federal Register. The public comment period will remain open for 60 days from the date of publication in the Federal Register.

During this period, stakeholders may submit comments on proposed changes to transfer agents. The proposal covers record-keeping, communications, transfer services, reporting and other activities of registered transfer agents.

Tokenized assets enter market infrastructure

This proposal comes at a time when tokenized assets become part of multiple securities infrastructure projects. The New York Stock Exchange (NYSE) and Securitize are working together to develop a tokenized securities platform.

Separately, tZERO and the Intercontinental Exchange (ICE) reached an agreement on Monday to jointly develop a tokenized securities infrastructure. Their project involves systems to support the NYSE-associated tokenized securities platform in the ICE program.

tZERO will help build the digital transfer agent and broker-dealer systems needed for the ICE Program Platform. The company said the work would also help establish standards for digital transfer agents. These projects place transfer agents more closely in efforts involving blockchain-based ownership and securities transfers.

The SEC's cryptocurrency regulation proposal addresses this infrastructure by potentially changing federal transfer agent requirements.

Blockchain could become official ownership record

The core blockchain provisions of the proposal would allow the technology to serve as an official record of security ownership. This change will connect the responsibilities of traditional transfer agents with the systems that support tokenized assets.

Therefore, cryptocurrency regulation will directly apply to how registered intermediaries maintain and transfer ownership records. The proposal would keep these activities within the SEC's existing regulation of registered transfer agents.

For issuers and market intermediaries, the proposal focuses on operating rules rather than creating new investment products. It involves electronic communications, shareholder records, transfer processes, reporting responsibilities and blockchain-based record-keeping.