We are writing to the SEC, and here is what we are saying.

Dear Ms. Countryman:

Deal Box Transfer Services LLC is a Delaware limited liability company that provides capitalization table and securityholder recordkeeping services to private issuers. We are not registered with the SEC as a transfer agent and we do not hold ourselves out as one. We write as an operator of exactly the kind of recordkeeping the proposal contemplates, and as a firm that would be a plausible new entrant under the modernized rules.

We support the proposal generally, and we write on four points.

1. The master securityholder file, and the answer to Question 50. We support the amended definition permitting, without mandating, the use of a blockchain or other distributed ledger technology as the master securityholder file or a component of it. In answer to Question 50, we suggest three conditions, each drawn from doing this work rather than from theory:

• (a) Sole authorship. A distributed ledger should qualify only where the transfer agent alone can cause an entry, and where no other party — the issuer, a key holder, or a smart contract acting on its own terms — can change a position without an instruction the transfer agent has accepted. Where a ledger can be written by others, it is a source to be reconciled against, not a file to be kept.
• (b) A disagreement is a record difference. Most issuers will not put the file on-chain; they will mirror positions in a token while keeping the book elsewhere. We suggest the Commission state expressly that a disagreement between a mirrored on-chain position and the master securityholder file is a record difference for purposes of Rule 17ad-11 — opened, dated, aged, valued and reported — and not something to be resolved by adjusting one side to match the other. In our experience this is the most common failure in tokenized issues, and the rules as written do not clearly reach it.
• (c) Readable without the vendor. Where a distributed ledger is used, the transfer agent should be required to be able to produce the entire master securityholder file, complete and human-readable, without depending on any particular platform, node operator or paid service continuing to exist. A record that can only be read while a contract is current is not a record.

2. The control book. We support adding “outstanding” alongside authorized and issued. We would add, from practice, that the definition is only useful if the rules also make explicit that an instruction which would take issued or outstanding above authorized must be refused rather than recorded. Rule 17ad-10 comes close to saying this. We suggest saying it.

3. Form TA-2, Question 4(e). We support the new question. We suggest it distinguish between issues where a distributed ledger is the master securityholder file and issues where a distributed ledger mirrors a file kept elsewhere. The two carry materially different risks, and a single count would combine them in a way that makes the data harder to use.

4. Small recordkeeping agents. The rules being modernized were written for an industry of large agents servicing public issues. The population the proposal will actually attract includes small firms keeping registers for private companies with tens or low hundreds of holders. We would encourage the Commission, in setting any transition period, to weigh the fixed compliance cost against the size of the book kept rather than the size of the firm keeping it.

We appreciate the opportunity to comment and would be glad to answer questions.

Dear Ms. Countryman:

Deal Box Transfer Services LLC is a Delaware limited liability company that provides capitalization table and securityholder recordkeeping services to private issuers. We are not registered with the SEC as a transfer agent and we do not hold ourselves out as one. We take no position on the dollar thresholds, on the safe harbor, or on the scope of “covered investment contract.” We write on one point.

1. Conditional secondary market preemption implies a securityholder record, and the proposal does not say so. Proposed Rule 500 would preempt state registration and qualification requirements for secondary market transactions in a covered investment contract, and that preemption “would continue for the period during which the issuer continues to satisfy the disclosure and filing and/or periodic reporting requirements of an exemption under Regulation Crypto Assets for that covered investment contract.” We support this structure. Tying a continuing benefit to a continuing duty is the right shape.

It does, however, create a practical problem. The release asks, at Questions 141 and following, whether a secondary market participant can determine that preemption applies. In our view they generally cannot, because both the issuer's compliance status and the securityholder record that supports it are held privately — by the issuer, or by a vendor the issuer pays.

2. Three suggestions.

• (a) Say that the record is expected. We suggest the Commission state, in the adopting release if not in the rule, that an issuer relying on either exemption is expected to maintain a securityholder record adequate to support its ongoing disclosure: a current list of holders of record, and the history of the changes that produced it. The reporting duty already implies the record. Saying so closes a gap that will otherwise be found the hard way.
• (b) Let currency be verifiable without disclosing holders. We suggest the Commission consider expressly permitting an issuer to publish a cryptographic commitment — a hash — to the state of its securityholder record as of each reporting date, without publishing the record itself. This costs an issuer almost nothing, reveals nothing about any holder, and allows a secondary market participant, an auditor or the Commission to confirm later that the record existed on that date and has not been altered since. We do this for our own clients today, and we would support the Commission treating it as sufficient evidence of currency rather than as a novelty.
• (c) Do not let a vendor hold preemption hostage. Where an issuer's securityholder records are kept by a third party, we suggest the Commission make clear that the third party may not condition the issuer's access to, or complete export of, its own securityholder record on the continuation of a commercial relationship. An issuer whose ability to remain current depends on continuing to pay a vendor is one invoice away from its investors losing a protection the Commission intended them to have. We have a commercial interest in this point, and we state it plainly for that reason: we do not charge to leave, and we think no one should be able to.

We appreciate the opportunity to comment and would be glad to answer questions.