SEC’s 50-Year Rule Move: Double Registration for Tokenized Securities Could End
If the SEC’s new proposal is accepted, blockchain could become the legally recognized official record of ownership for tokenized securities.
Today, many tokenized securities maintain two records: the on-chain record showing token ownership and the official shareholder list considered legally valid. The U.S. Securities and Exchange Commission (SEC) has proposed a framework that could end this distinction with its proposal to update transfer agent rules that are nearly 50 years old.
If the proposal is accepted, electronic databases and blockchain ledgers could be used as the official record of security ownership. This would allow blockchain to move beyond being just a technology added on top of existing market infrastructure and instead function as the legally recognized primary record.
The era of double registration for tokenized shares may change
In these structures, issuers and transfer agents are forced to compare blockchain activity with the official shareholder record and reconcile the records after every transfer. If the SEC’s proposal is implemented, this process could be conducted around a single master record.
Joris Delanoue, CEO of the on-chain transfer agent Fairmint, noted that official records of ownership historically consisted of paper in a filing cabinet, whereas today they are kept as a database. Delanoue stated that the proposal could allow blockchain to be used as this database.
Eli Cohen, legal lead at Centrifuge, expressed that these two separate recording systems could create serious confusion in cases of insolvency or bankruptcy. Having blockchain as the primary security record could reduce the risk of ownership information conflicting across different systems.
Regulations and transfer agent duties will continue
The proposal does not mean that tokenized securities will be exempt from ownership and transfer rules. Even if the blockchain is public, tokens will continue to function alongside identity checks, ownership requirements, and transfer restrictions.
The duties of transfer agents will also remain. These institutions will need to continue tasks such as inheritance proceedings, legal notices, address changes, ownership restrictions, and the correction of erroneous records. In other words, simply running a smart contract will not be enough to manage the official record of ownership.
The proposal notes that the current 3-5 day period for processing documents received via mail could be reduced to 1 day. A 60-day public comment period will be held for the regulation, ending at the beginning of November. Tokenization companies and traditional financial institutions are expected to submit their views on the proposal during this period.