History of Transfer Agents

The SEC has announced that it:

voted to issue an advanced notice of proposed rulemaking (ANPR) for new requirements for transfer agents, together with a concept release requesting public comment on the Commission’s broader review of transfer agent regulation.

The ANPR and concept release provide a summary of the history of the national clearance and settlement system, the role of transfer agents within that system, and the origins and current status of the Commission’s transfer agent rules.

The Commission also identifies in the ANPR certain areas in which it intends to propose specific rules or rule amendments, including registration and annual reporting requirements, safeguarding of funds and securities, antifraud requirements in connection with the issuance and transfer of restricted securities, and cybersecurity and information technology, among others.

The concept release seeks comment on a broader range of issues to help inform the Commission’s consideration of additional rulemaking. These include the processing of book entry securities, bank and broker-dealer recordkeeping for beneficial owners, administration of issuer plans, outsourcing and the role of transfer agents to mutual funds and crowdfunding.

The proposals themselves are not really very interesting – although I’m sure various specialists will be fascinated! – but I’m highlighting this because the Request for Comments: Release No. 34-76743; File No. S7-27-15 contains a short history of transfer agents in the US including a section on something that has long fascinated me: the Paperwork Crisis of the 1960s:

As trading volume increased throughout the 1960s and early 1970s, the burdensome manual process associated with transferring certificated securities created what came to be known as the Paperwork Crisis. It was, at the time, “the most prolonged and severe crisis in the securities industry”41 since the Great Depression and to this day is one of the largest challenges the U.S. securities markets have faced. The manual settlement processes for certificated securities could not keep up with increasing trading volumes, deliveries to customers of both cash and securities were frequently late, and stock certificates were lost in the rising tide of paper. The substandard performance of transfer agents was “a significant contributing factor” to the Paperwork Crisis.
42 At times during 1967 and 1968, the New York Stock Exchange (“NYSE”) closed early on some days and during a substantial portion of 1968 closed entirely on Wednesdays to attempt to allow the brokerages and other firms to keep up with the volume.43

In the immediate aftermath of the Paperwork Crisis, more than 100 broker-dealers went bankrupt or were acquired by other firms and “[t]he inability of the securities industry to deal with its serious operational problems . . . contributed greatly to the loss of investor confidence in the efficiency and safety of [the U.S.] capital markets.”44 However, other consequences of the Paperwork Crisis were deeper and longer lasting. As discussed below, over the next years and decades, Congress, federal and state regulators, and industry participants, including brokers, dealers, banks, and securities exchanges, worked together to drastically reshape critical operational aspects of the securities industry, ultimately leading to major revisions to both federal and state securities laws, and the advent of the modern national market system and National C&S System as they exist today.

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