Why Using a Transfer Agent is a Critical Component for Truly Compliant Digital Securities Offerings

And not just because they’re required for Regulation A+ offerings…

Key Points:

  • Blockchain technology may not eliminate third-parties from a digital securities offering, but it will definitely evolve them
  • Regulators have hinted that the blockchain is not a valid source of truth, making the use of a transfer agent crucial
  • Technology can be used to provide the necessary digital securities custody tools to transfer agents

First, the role of transfer agents prior to digital securities:

  1. Keep secure records of who owns a company’s stocks and bonds, how much is owned, and how they’re held.
  2. Act as an intermediary for a company. This includes serving as a paying agent to pay out dividends, cash, or other distributions to shareholders, sending out annual reports and sending proxy information for shareholders to vote.
  3. Handle lost, destroyed, or stolen certificates.

But wait, why are they necessary for digital securities?

Now, what do transfer agents roles look like when paired with blockchain technology?

The goal here was to provide transfer agents with the tools necessary to fulfill the same role for digital securities as they do for traditional securities while enhancing capabilities, investor protection, and transparency

  1. The transfer agent still maintains the records of ownership and good control location in order to keep regulators happy and to act a paying agent for distributions. All transactions are signed by the transfer agent and are transparently and immutably stored on the Ethereum blockchain. This adds an additional layer of protection and transparency for investors and issuers, as anyone can view the public ledger at any time.
  2. The transfer agent can perform legend lifts. While smart contracts can be programmed to automatically lift legends, this gets tricky when you’re dealing with multiple holding periods, affiliates, etc. For example, if a holder becomes the CEO of the issuer (e.g. an affiliate who is now restricted from “insider” trading in the security), the issuer could be forced to burn the holder’s digital securities, reprogram with the new restrictions and issue a new token. With Custodyware, the issuer can simply notify the transfer agent and the transfer agent can input the CEO’s KYC’d wallet ID into the Custodyware portal and apply relevant affiliate status restrictions on the securities in that wallet. This approach puts control in the hands of properly SEC regulated transfer agents instead of developers or CEOs, thereby adding investor protection.
  3. Handle lost, destroyed, or stolen certificates. Typically, if an investor loses their private key to a wallet, there isn’t a third party an investor can go to for a new password. Using a transfer agent makes it possible to return digital securities. Another item that’s important here is escheatment, the legal process of re-allocating unclaimed or abandoned property. For example, if someone passes away and wished to pass down their digital securities to a relative, this would be possible using a transfer agent and the Custodyware portal.

Final notes:



A MERJ Exchange Market. Ethereum-powered exchange for digital securities and NFTs

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store

A MERJ Exchange Market. Ethereum-powered exchange for digital securities and NFTs