The SEC Is finally modernizing transfer-agent rules. Wall Street must not repeat the ‘paperwork crisis’

If ownership data is split across a token wrapper, a special-purpose vehicle (SPV), a broker’s internal ledger and a transfer agent's off-chain database, we are setting the stage for a Paperwork Crisi...

On Sept. 1, the U.S. Securities and Exchange Commission proposed the first major update to its transfer-agent rules since the late 1970s. While part of the agency’s ongoing modernization efforts as the world moves from paper records to electronic data, the change is also future-proofing securities rules for the burgeoning world of tokenization.

In the proposal, Chair Paul Atkins notes the official rules should reflect how transfer agents actually work today or will work tomorrow, including their use of “blockchain technology in connection with securities offerings and the transfer of shares.”

This is not a blanket endorsement of tokenization, but a recognition of the power of blockchains for record-keeping.

Transfer agents are a critical part of the securities industry, by design. They keep the official list of who owns what, process transfers, handle restrictive legends and sit inside the national clearance and settlements systems, working with the DTCC. In other words, they’re the entity — the official register — that proves a share is a share.

Blockchains can be and are being used to improve this system. Tokens trade continuously 24/7, settle faster and increase distribution. Yet, unless the tokens themselves are the assets they’re supposed to represent, then they’re just creating a countless amount of digital wrappers around the actually important paper certificates.

Wall Street has already lived through a version of this story, in the Paperwork Crisis. In the late 1960s, an unexpected surge of trading volume overwhelmed the manual, paper-based system used to process and clear stock transactions, causing back offices to fall catastrophically behind. For half a year, the NYSE was forced to close on Wednesdays to clear the backlog.

Compounding the issue — there was not a single authoritative list of who owned what.

The industry eventually solved the crisis by shifting from decentralized physical tracking to centralized digital recordkeeping. The Depository Trust Company, formed in 1973, effectively "immobilized" physical certificates in a central vault, allowing ownership to be transferred through electronic bookkeeping, a system that still underpins modern global financial markets.

Today, tokenization risks recreating the problems of non-standardized record-keeping. If ownership data is split across a token wrapper, a special-purpose vehicle (SPV), a broker’s internal ledger and a transfer agent's off-chain database, we are setting the stage for a Paperwork Crisis for the blockchain age.

As I’ve said before, a token is not equity, but equity can be a token. The key question is whether the token in a wallet is the official ledger required under Section 17A of the Exchange Act.

Fairmint registered as a transfer agent in 2023 with the idea that the cap table itself should be the system of record, not a spreadsheet that a token later pretends to represent. We issue, administer and transfer equity directly onchain. This is a fundamentally different design from wrapping off-chain securities and hoping the two ledgers stay in sync.

The SEC’s proposal wisely avoids creating a separate "crypto transfer agent" charter or relegating tokenized shares to a regulatory sandbox. Integrating distributed ledgers into the existing Section 17A framework prevents a fractured, two-tier market where "real" stocks live in one system and "tokenized" stocks live in another.

For that integration to work at market scale, the industry should organize around a common, open standard for ownership data. And to ensure this framework works in practice, the Commission must address three critical operational realities:

While the commission works through what "control" of a distributed ledger means, one principle must remain intact: a public blockchain can serve as the official record, but a wallet address is not a substitute for a regulated intermediary. The transfer agent remains essential to map onchain assets to identifiable owners and enforce compliance.

That is the model worth defending. What is not worth defending is forcing intermediaries to manually reconstruct a paper-era master file on top of a blockchain that already is the file.

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.

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