A transfer agent’s role in Reg A+ and Reg D securities offerings

By Vanessa Malone

A growing investor base

The exempt securities market, which includes popular capital raising vehicles Regulation A+(Reg A+) and Regulation D (Reg D), has surpassed the registered securities market. 69% of capital formation in 2019 was generated through exempt securities offerings.¹

This is incredible news for the retail investor. Reg A+ and Rule 506(c) of Reg D all permit some form of general solicitation, which allows an issuer to promote their investment opportunity broadly through social media, email, and other mass communication channels. 

The JOBS Act of 2012, which put these capital raising vehicles into effect, is fulfilling its goal of giving more and more Americans access to critical funding while allowing more investors to participate in early stage investment opportunities.

As this trend continues, we can expect an influx of Reg A+ and Reg D issuers. These issuers are going to be seeking out key financial service providers to support their offerings.

We believe one of these critical pieces to the puzzle is a transfer agent.

A transfer agent’s role in bringing secondary trading to exempt securities

While a transfer agent is mandatory for issuers to engage when conducting a Tier 2 offering under Reg A+, we believe engaging a transfer agent has even greater implications as the exempt securities marketplace continues to mature.

According to the SEC, because transfer agents stand between issuing companies and security holders, efficient transfer agent operations are critical to the successful completion of secondary trades.

Secondary trading is precisely where the capital raising industry is lacking.

Out of the hundreds of Reg A+offerings and thousands of Reg D offerings, only a handful have secondary trading. This means there is an estimated $2.7 trillion inlocked liquidity potential for retail investors.²

We believe transfer agents should be prepared to deploy technology that supports Reg A+ or Reg D issuers, especially those who want to offer secondary trading liquidity to their investors. 

How can transfer agents support the exempt securities market

Horizon has built a complete one-stop-shop for securities technology addressing issuance all the way through to secondary trading. 

We worked backward from secondary trading in order to ensure a streamlined process throughout the lifecycle of a securities offering. In doing so, we immediately recognized that transfer agent integration needed to be part of our compliance-first methodology.

We built our CustodyWare software solution to enable U.S. transfer agents to seamlessly custody securities, pay dividends, and make ATS-trading transfers with an advanced cap. table management platform​. The technology is already being licensed to firms like Vstock Transfer, and our goal is to equip all transfer agents with our modern-day custody solution.

A few key CustodyWare features:

  • Integration streamlines all major transfer agent functions including issuance, custody, transfer, query, reporting, affiliates and release
  • Paying agent tools for instant dividends & distributions
  • Up-to-date shareholder listings with clear, transparent and immutable storage of all transactions for reporting and compliance requirements
  • Automated compliance for restricted securities, Rule 144, affiliate management
  • Integrated KYC/AML compliance checks on investors with notarized regulatory proof that checks have been performed
  • Adaptable to differing investor verification requirements for U.S. and non-U.S. investors

In conclusion

A new wave of capital formation is giving unprecedented access to investors of all levels. We believe that the next focal point for the marketplace will be secondary trading. That said, transfer agents should ensure that they are being proactive in their approach. We expect that our proprietary technology solutions will help fuel this next stage in the capital formation industry’s evolution.

To see how CustodyWare could seamlessly integrate into your transfer agency, please contact horizon@custodyware.com for a software demo. 

1,2 SEC Capital Formation Report 

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