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A Better Way to Issue and Manage Your Stock

Modern Transfer Agents Improve Capital Efficiency

Dec 17, 2021

The business rule-of-thumb, “underpromise, overdeliver,” was completely inverted this month when former BuzzFeed (NASDAQ: BZFD) employees who owned stock could not cash out.

Specifically, former BuzzFeed employees, whose stock options had already vested and were no longer locked up, were unable to transfer their equity into cash after BuzzFeed’s initial public offering (IPO).

A misalignment between the number of shares issued and the number of shares available caused a supply-demand imbalance, creating chaos for former employees and investors alike. This unacceptable outcome was further exacerbated by BZFD’s rapidly declining share value. What had started out as a promising payday resulted in loss, disappointment, and confusion.

Not Alone

The problem lies squarely with legacy transfer agents, and this is not the first time that they have led to massive value destruction. Other companies using legacy stock transfer agents such as Continental, Computershare, and American Stock Transfer have experienced similar problems. BuzzFeed is simply the most recent example of how stock transfer inefficiency results in unexpected losses.

The fundamental mismatch between stocks issued and stocks available is technological at its core. The overreliance on antiquated technology like paper records makes modernizing difficult, and is emblematic of a larger issue for financial services. The extreme consolidation of legacy stock transfer agents and the lack of awareness for alternatives has left the industry with little reason to change.

From mergers and acquisitions to special purpose acquisition companies (SPACs) and IPOs, these problems have three things in common – a lack of agency, technological fragmentation, and a fresh opportunity to remodel the industry with digital-first issuance. How do we get there?

Transfer Agency

Stock transfer agents are critical, yet rarely discussed, stewards of our financial infrastructure, coordinating the securities lifecycle from issuance to settlement and reconciliation.

Transfer agents are responsible for a lot – from ​​keeping track of shareholders and their holdings to cancelling and reissuing securities, clawbacks, and trade orders. For shareholders, this means that transfer agents manage distributions and governance, death and divorce situations, and, above all, compliance.

Traditionally, transfer agents supporting private companies navigate compliance first to ensure that the rest of their business needs line up properly. Operating within the fence of the law means using technologies that perform well within that environment. Until recently, options have been limited.

Modernizing Transfer Agents

There are new ways to improve capital efficiency when issuing, trading, and settling securities in a compliant manner. Blockchain technology, which automates record-keeping and transaction processing, is bringing this century-old yet critical service into the modern age, so stock transfer disasters like the BuzzFeed situation do not happen again.

Securitize laid the groundwork for digital asset securitization in 2018 with the launch of DS Protocol, a digital ownership architecture for complete lifecycle management of digital securities. This extensible protocol enables complex trading scenarios to run on efficient blockchains like Algorand, Avalanche, and Tezos, reducing firms’ operational expenses and delivering accountability. If it’s not coded, it can’t happen. In the case of BuzzFeed, failing to accurately keep records simply would not have been possible.

Digital-First Issuance

Securitize provides private companies and firms with a compliant Digital Transfer Agent to easily issue private equity without cumbersome paper records. Starting with a digital transfer agent first streamlines securities management from end-to-end so what happens on the backend functions in lock-step with what investors see on the frontend.

These technological improvements mean that costs tied to processing trades can be reduced, and margin savings can be passed on to investors. As we’ve seen, manually processing paper records is prone to human error, miscommunication, and backlog. Digital asset securitization, on the other hand, automates complex contractual procedures using smart contracts on the backend to improve capital efficiency.

Securitize passes this capital efficiency onto investors, charging low fees (0.50%) for actively managed digital asset securities like the Securitize S&P Cryptocurrency Tokenized Fund.*

Digital Transfer Agent Adoption

While digital transfer agency is the way of the future, many digital transfer agents, like Securitize, also offer book-entry record keeping options for shareholders not yet ready or comfortable with making the leap to blockchain-only infrastructure. Securitize AQUA, a permissioned blockchain alternative similar to Quorum, provides companies and firms a familiar bookkeeping backend with all the benefits of using a digital-first transfer agent: instant settlement, reduced costs, and programmatically enforceable regulatory restrictions.

Closing Bell

At the end of the day, firms want optionality. Precisely because of situations like BuzzFeed, where shareholders wound up in the lurch, it’s important that companies leave the direction of technological innovation up to their shareholders.

This idea isn’t new. Shareholders regularly vote on governance decisions. Providing them with the option to vote on the measures that matter most to their bottom lines just makes sense.

The moment that all shareholders wait for, especially equity-holding employees, is the day that their private equity goes public. Wouldn’t it be great if they had a say in how that process works?

Learn More about our Digital Transfer Agent

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S&P Crypto:

The S&P Cryptocurrency Large Cap Ex-MegaCap Index is a product of S&P Dow Jones Indices LLC (S&P DJI), and has been licensed for use by Securitize Capital. S&P® is a registered trademark of Standard & Poor’s Financial Services LLC or its affiliates (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by S&P DJI and sublicensed for certain purposes by Securitize. The Securitize S&P Cryptocurrency Large Cap Ex Mega Tokenized Fund based on the S&P Cryptocurrency Large Cap Ex-MegaCap Index is not sponsored, endorsed, sold or promoted by S&P DJI, Dow Jones, S&P, or their respective affiliates, and none of such parties makes any representation regarding the advisability of investing in such products.

Check the background of Securitize Markets on Finra BrokerCheck.

Securities are offered through Securitize Markets, LLC, (“Securitize Markets”) a registered broker-dealer and member FINRA/SIPC. Neither Securitize Markets, nor any of its affiliates provide any investment advice or make any investment recommendations to any persons, ever, and no communication through herein or in any other medium should be construed as such. Securities offered on the Securitize Markets ATS have not been registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. Assets listed herein, such as digital assets or tokens using blockchain, are speculative, involve a high degree of risk, are generally illiquid, may have no value, have limited regulatory certainty, are subject to potential market manipulation risks and may expose investors to loss of principal. Investments in private placements, start-up investments in particular, are also speculative and involve a high degree of risk. Investors must be able to afford the loss of their entire investment. Eligibility to buy and sell securities on the Securitize Markets ATS is determined by Securitize Markets in its sole discretion. Offers to sell, or the solicitations of offers to buy any security can only be made through official offering documents that contain important information about risks, fees and expenses associated with the applicable securities available for trading on the Securitize Markets ATS. Investors should conduct their own due diligence, not rely on the financial assumptions or estimates displayed herein, and are encouraged to consult with a financial advisor, attorney, accountant, tax advisors, and any other professional that can help you to understand and assess the risks associated with any investment opportunity. Past performance is not indicative of future results. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided herein or through any references/links herein. Any financial projections or returns shown herein are provided by the issuer of the relevant security and Securitize Markets has not verified the accuracy. Further, there can be no assurance that any valuations provided by issuers are accurate or in agreement with market or industry valuations. Securitize Markets and its affiliates make no representations or warranties as to the accuracy of such information. Securitize Markets may collect certain information about you that helps us comply with various securities regulations and rules and the USA PATRIOT Act, a Federal law that requires all securities firms to obtain, verify, and record information that identifies each applicant. The information also helps us more fully understand your investment profile and identify what types of investments or strategies may be suitable for you. The term “Investors” used on this website, typically refers to accredited investors where applicable. Please note: if we cannot verify the information you provide, we may be required to restrict or deny your account. Trading during Extended Hours Trading Sessions carries unique risks, such as greater price volatility, lower liquidity, wider bid/ask spreads, and less market visibility, and may not be appropriate for all investors. There is no guarantee that a diversified portfolio will enhance overall returns, outperform a non-diversified portfolio, or prevent against loss. By accessing this site and any pages thereof, you agree to be bound by our Terms of Service and Privacy Policy.