Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

The SEC has issued a release soliciting comment on the regulation of transfer agents. After some initial background, it’s divided into two parts.  The first is an advance notice of proposed rulemaking, seeking comment on specific regulations and potential changes. The second part is a concept release, soliciting comment on broader topics.

The release begins with the history of transfer agents and the development of regulations. For instance, it answers the mystical question of where DTC got the name for its nominee, “Cede & Co.”  It’s short for “certificate depository.”  See footnote 87 on page 31.  It also explains the odd term “regular way” which sometimes works its way into documents. That apparently is just a reference to normal T+3 settlement.  See footnote 262 on page 74.

Importantly, the release signals the SEC’s intent to impose enhanced obligations on transfer agents in the transfer of restricted securities. To combat microcap fraud, the SEC intends to propose rules:

  • prohibiting any registered transfer agent or any of its officers, directors, or employees from directly or indirectly taking any action to facilitate a transfer of securities if such person knows or has reason to know that an illegal distribution of securities would occur in connection with such transfer;
  • prohibiting any registered transfer agent or any of its officers, directors, or employees from making any materially false statements or omissions or engaging in any other fraudulent activity in connection with the transfer agent’s performance of its duties and obligations under the Exchange Act and the rules promulgated thereunder; and
  • requiring each registered transfer agent to adopt policies and procedures reasonably designed to achieve compliance with applicable securities laws and applicable rules and regulations thereunder, and to designate and specifically identify to the Commission on Form TA-1 one or more principals to serve as chief compliance officer.

With respect to Regulation Crowdfunding, the SEC solicits comments on the following topics:

  • What services, if any, do commenters anticipate transfer agents providing for crowdfunding issuers?
  • How do commenters anticipate transfer agents will comply with their recordkeeping, safeguarding, and other requirements in the context of crowdfunding securities?
  • Does the entry of transfer agents into the crowdfunding space pose new or additional risks for the prompt and accurate settlement of securities transactions?
  • Transfer agents have traditionally assessed fees on a per shareholder basis. Do commenters believe transfer agents are likely to impose a per shareholder fee in connection with crowdfunding issuances? If so, is a per-shareholder fee appropriate? If not, what other kinds of fees are likely to be charged, and would they be appropriate?


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