Securitize approved for Broker-Dealer/ATS acquisition
1. Please tell us a little bit about Pacific Stock Transfer and the role of a transfer agent company.
Pacific Stock Transfer (“PST”) is an SEC-registered, full-service transfer agency serving the equity administration needs of both private and publicly-traded issuers. The primary role of a transfer agency is to maintain an accurate register of share ownership by processing and recording shareholder transactions, such as stock issuances and transfers, while maintaining compliance with SEC rules and regulations. Additional services include annual meeting administration, proxy tabulation, cash dividend distribution, dividend reinvestment plans, stock option administration, and EDGAR filings/XBRL tagging for SEC reporting issuers.
2. Why are some private companies required by law to use a transfer agent company, specifically certain companies using Reg. CF and Reg A+ to raise equity?
The requirement to use a transfer agent stems from the compliance risk companies may face as their shareholder base grows and transactions become more complex. Managing a cap table of 5-10 investors for a startup can be very straightforward to handle internally; however, when you introduce crowdfunding regulations that lead to hundreds (or thousands) of investors, the maintenance of the evolving shareholder register and processing of transactions becomes more time consuming, more complex and presents an internal compliance risk for these companies.
3. Many private companies still utilize transfer agent services even though it’s not required by law. What are the circumstances that would make it necessary for a private company to seek transfer agent services and what kinds of companies typically do?
The decision to engage a transfer agent is rarely required by law, unless the company is taking advantage of certain regulations that require it. We believe it’s necessary to engage a transfer agent as soon as a private company feels uncomfortable with the level of shareholders or transactions they are presented with. Even if the company is comfortable handling the service in-house, we still encourage the early engagement of a transfer agency if the company intends to raise capital, attract shareholders, and eventually go public.
The private issuers we see seeking the services of a transfer agency usually:
4. Digital securities (security tokens) were “invented” only a few years ago. What is the potential impact that companies replacing paper-based securities with security tokens will have on the transfer agent industry?
The transfer agent industry has long been pushing both private and publicly traded clients to issue shares in Book Entry, which is essentially an electronic representation of shares held on the register of the transfer agent as opposed to issuing paper certificates. By eliminating paper securities, both compliance risk (lost securities, fraud, etc) and transaction costs go down, while processing efficiency goes up.
Issuing digital securities is the logical next step to further the industry efforts to increase efficiency and compliance. As long as transfer agents have the technological ability to facilitate transactions for digital securities, not much will change in our efforts. However, transfer agents who aren’t willing or able to embrace new technology will struggle to support the next generation of cutting-edge companies.
5. Assuming security tokens will facilitate a “digital” transformation for private securities, what are some of the keys to adoption for the transfer agent industry?
The adoption of the transfer agent industry heavily relies on the adoption of the issuers we service in the digital transformation. As the need to issue digital securities becomes more prevalent, more transfer agents will launch software partnerships to accommodate the changing needs of the clients. General maintenance items such as lost shareholder searches, the replacement of lost securities, registration changes, and other KYC requirements will be happily adopted as shareholder information is stored in a more advanced capacity in the digital landscape. Many of the time consuming, manual services of transfer agents are solved through KYC, digital issuances, smart contracts, and a chain-structured registrar.
6. What are some of the key trends you see developing among your clients and prospects?
Over the past few years, a large trend has been small to mid-cap companies taking advantage of crowdfunding regulations to raise capital. The traditional IPO landscape for smaller companies can be cost-prohibitive, so access to capital at a lower cost has become a major priority. Simplified and affordable access to capital comes with the new territory of extremely large or complex cap tables, which leads these companies to engage transfer agencies, IR firms, and software partners for assistance.
And of course, we’ve also seen a rise in issuer interest in the issuance of tokens and digital securities. As the SEC continues to gain a complete understanding of the digital security capital markets, issuer demand will continue to increase exponentially.
7. What types of regulatory changes do you anticipate in the industry over the next 5 years and how important is it for transfer agents to collaborate with regulators to ensure the industry follows the rest of capital markets into the digital age?
Over the next 5 years, we expect a large scale adoption of digital securities and technology. The issuance, trading, and maintenance of digital securities will disrupt all stakeholders in the capital markets, including brokerage firms, depositories, and transfer agencies. The SEC continues to work with the leading firms embracing the digital transformation to ensure both issuers and shareholders are protected in the capital markets, which will continue to take time. It’s absolutely critical both regulators and the regulated entities understand each other’s role in serving the capital markets to ensure further progress is not hindered.
About Pacific Stock Transfer
Pacfic Stock Transfer, as a part of Pacific Services Group (which includes Capital Transfer Agency in Canada) is a full-service transfer agency serving public and private companies across the United States and Canada. As a group, we represent over 3,000 issuers, comprised of over 750,000 shareholders worldwide.
Learn more about Pacific Stock Transfer here...
Securitize is reinventing private capital markets by delivering trusted end-to-end security token solutions that leverage our leading blockchain technology, which increases access to private markets for eligible investors while simultaneously making them more efficient, compliant, and liquid. Securitize is an SEC-registered transfer agent and its subsidiary, Securitize Markets, LLC, is an SEC and FINRA registered broker-dealer and alternative trading system (ATS).
To learn more, please visit our website.
This site is operated by Securitize, Inc. (“Securitize”), which is not a registered broker-dealer. Securitize does not give investment advice, endorsement, analysis or recommendations with respect to any digital securities. All digital securities powered by Securitize’s technology are offered by, and all information related thereto is the responsibility of, the applicable issuer of such digital securities. Neither Securitize nor any of its officers, directors, agents and employees makes any recommendation or endorsement whatsoever regarding any digital securities powered by Securitize’s technology. Nothing on this website should be construed as an offer, distribution or solicitation of any digital securities. Securitize does not provide custodial services in connection with any digital securities powered by Securitize’s technology.