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Howard, good to hear about the important solutions adopted by Startengine to enable the practical tokenization of securities. At Untitled-Inc we are also advising on very similar issues, although in a number of EU jurisdictions. I would point below to some issues which have arisen for us and how those issues are being tackled so far and also comment or question some of your points. I hope this will be a sort of brainstorming and hope to get your feedback as well.

- Firstly I would point out that what you mention here can be done only when shares in public limited companies are tokenized. In most EU jurisdictions for instance, the transfer of shares in private limited companies are regulated by law with requirements such as Notarial deed and/or registration by the public Registrar of Companies. Most public limited companies instead provide for the possibility of so called “uncertificated or de-materialized” shares to be issued. But here the issuing company must hold an internal book to keep record of the ownership and, because the shares are de-materialized, the transfer must be proved in written form or by (certification) of a stock broker or a stock exchange.

- do you exclude in the by-laws the right of tokenholders to request the issue of paper share certificates? This is relevant because this may expose the issuing company to a number of problems and frictions with tokens issued.

- how do you make sure that there is no duplication of tokens issued in respect to the underlying shares? say that after fractional banking, fractional paper gold, and fractional USDTether, we now enable a regime of “fractional corporate tokenization”. The transfer agent can reconcile the token/share position on that specific exchange, but with the possibility of issuing tokens on multiple exchanges and platforms that would be impossible to verify. Also, the custody and settlement of shares traded on stock exchanges is centralized with the DTCC, which makes cheating more difficult, but with tokens you have a multiplicity of operators who do not talk to each other.

- If I understand correctly, your transfer agent effectively acts as the third party validator who enables the effective transfer of ownership of the underlying shares. This is done off-chain right? While, instead, the token transfer is on-chain. So you have a decentralized token transfer platform with a centralized custody/settlement chain, am I right?

- how do you address the issue of the loss of private keys seems straightforward as you put it. But it is more complicated than that. What if the keys were sold or assigned to someone else, the same way I can assign my bank account details and password to someone to withdraw funds to another account? And what if I have been paid consideration by a bona-fide third party buyer? In other instances a mechanism for allowing third parties to notify to the issuer their claim on the tokens was introduced, together with freezing of the account until the claim was ascertained and a dispute resolution mechanism.

- what happens to tokens when hard forks happen? Do token holders have a saying in that or the issuer advocates any decision?

- what about the possibility of reversing a token sale? does the ERC1450 smart contract allows that? in which cases? We have seen that it is safer to have token holders subscribe to terms and conditions accepting the consequences of the token transfer even if the reasons for that sale are flawed by error or fraud. But this will likely open an issue with liability for damages on the part of the issuer.

- can you transfer portions of shares? meaning, can you transfer a token representing 1/10th of a share? In most jurisdictions in the EU this would be a problem. I guess that if there is no regulatory problem in the US to do that, then the settlement by the transfer agent could be made in a way to account for fractions of shares being transferred.

Look forward to hearing your views.


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