SEC Proposal Could Make Blockchain the Official Record for Tokenized Stocks

SEC proposes using blockchain as official record for securities

The U.S. Securities and Exchange Commission (SEC) has proposed a new plan to modernize how stock ownership is recorded. This proposal would allow electronic databases, including blockchain ledgers, to serve as the official legal record for securities.

A blockchain is a digital ledger that records transactions across many computers so the record cannot be easily changed. If approved, the plan would overhaul rules for transfer agents that have been in place for fifty years.

Key details of the new plan

• The proposal would explicitly allow digital ledgers to be the "master security file" for stocks and bonds.
• It aims to eliminate the need for companies to maintain a second, offchain set of records.
• The change could reduce the costs of matching and verifying different record systems.

How ownership records work now

Currently, companies that put stocks on a blockchain must keep two separate records. One is the digital token ledger, and the other is an official shareholder register kept off the blockchain. Under the current system, lawyers and regulators view the offchain record as the legal one, even if the blockchain record is more up to date.

Why this change matters for tokenized markets

The current requirement to maintain two different ledgers can lead to legal problems, especially if a company faces bankruptcy. Industry experts state that having two systems is inefficient and can create a "mess" during legal disputes. Moving to a single, blockchain-based record could make the process faster and reduce operational risks.

Challenges for digital transfer agents

The proposal does not mean that tokenized securities will be unregulated. Transfer agents, which are the firms that track who owns a company’s shares, must still follow rules regarding who can own or transfer assets. They will also need to handle physical administrative tasks, such as processing legal notices and mail from shareholders. The new rules might require these firms to process documents within one day, down from the current three-to-five-day window.

Timeline for the new rules

The SEC has opened a 60-day window for the public to comment on the proposal. This comment period will end in early November. After that, the agency will review the feedback from traditional financial firms and blockchain companies before making a final decision.

Sources

• CoinDesk