As Stocks Move to Blockchain, Could an Old Crisis Return? Industry Warns SEC!
Fairmint’s CEO supports the SEC’s proposed rules for blockchain-based stock records, while warning that fragmented ownership records could recreate digitally the paperwork crisis Wall Street faced in the past.
An opinion piece published by CoinDesk on September 30 focused on the question of which record system underpins tokens representing shares. The SEC proposal discussed by the author was submitted on September 1 and has been described as the first major update to transfer agent rules since the late 1970s. These agents maintain official records showing who owns securities and process share transfers.
Is the token in your wallet really a record of ownership?
Representing shares on a blockchain offers possibilities such as round-the-clock trading and faster settlement. The issue highlighted by Fairmint’s CEO is that the ownership record behind these conveniences may be kept in multiple places.
When a special-purpose company, a brokerage’s internal system, and a transfer agent’s off-chain database each maintain separate records for the same share, those records need to remain consistent with one another. According to the author, the key distinction is whether the token in a wallet is itself the official record of ownership or represents a share recorded elsewhere.
The New York Stock Exchange once closed one day a week
Behind the warning is the Paperwork Crisis of the late 1960s. A rapid increase in share trading volume overwhelmed the paper-based recordkeeping and settlement system, forcing the New York Stock Exchange to close on Wednesdays for six months to clear the backlog. The problem was compounded by the absence of a single authoritative record showing who owned what.
The author argues that disconnected digital records could recreate similar confusion in the blockchain era. As a solution, the author proposes a shared, open standard for ownership data.
SEC urged to distinguish among three areas
While welcoming the SEC’s approach of bringing blockchain records under existing regulations rather than creating a separate license, Fairmint’s CEO calls attention to three points for implementation: distinguishing official records maintained directly on-chain from third-party token models; allowing digital identity and cryptographic information to be used for investor identity verification; and automating compliance checks through supervised smart contracts.
These are the author’s recommendations concerning the regulation. Fairmint also registered as a transfer agent in 2023 and, under its own model, issues, manages, and transfers shares directly on-chain; this recordkeeping structure is central to the approach the company advocates.