Digitising share transfer registers: principles and validity

1. Legal obligation and purpose of the RMT

1.1. Legal context

Under Article L. 228-1 of the Code de commerce, all unlisted joint-stock companies must maintain a share transfer register.

This official document is intended to provide a comprehensive and chronological record of all transactions affecting a company's shares.

The rigour of this obligation aims to ensure transparency of transfers and to protect shareholders' interests.

1.2. Information to be recorded

For each transfer, the RMT must contain precise information, including:

• The date of the transaction: placing the event in time.

• The serial number: ensuring chronological tracking and the authenticity of each entry.

• Details of the parties concerned: names and account numbers of the transferor and transferee, ensuring traceability.

• The number of shares concerned: indicating the scale of the transaction.

• The nature of the transfer: whether an issue, transfer or any other transaction affecting the capital.

• Additional remarks: to provide clarification or justification for the transfer.

In addition, shareholder accounts are associated with the register. These allow each investor to view, on a read-only basis, the current balance and full history of transfers relating to their shares.

2. From traditional formats to digital solutions

2.1. The traditional method

Formerly, the share transfer register was kept in the form of physical binders. Each page was carefully numbered, initialled and approved by the commercial court registries.

While this process guaranteed a certain level of security and authenticity, it presented several major drawbacks:

• Vulnerability to deterioration: wear and tear, weather or even accidental incidents could damage or destroy the documents.

• Risk of loss: an incident or poor management could lead to the disappearance of all the data.

• Time-consuming procedure: manually completing each entry required a considerable investment of time.

• Difficult updates: any amendment required manual rewriting or annotation, increasing the risk of errors.

2.2. Transition to digitisation

Faced with these limitations, company law has evolved to embrace the digital age.

Digitisation offers not only better security and enhanced traceability, but also simplified management processes.

The introduction of the shared electronic recording device (DEEP) marks a key stage in this modernisation.

3. The shared electronic recording device (DEEP)

3.1. Origin and legal framework

Ordonnance n°2017-1674 of 8 December 2017 paved the way for the use of DEEP in French law.

This device allows share transfers to be recorded electronically, thereby meeting the requirements for transparency and integrity.

Subsequently, décret n°2018-1226 of 24 December 2018 clarified the application of DEEP to share transfer registers, offering a modern alternative to paper formats.

3.2. Characteristics of DEEP

According to Article R211-9-7 of the Code monétaire et financier, DEEP must:

• Guarantee reliable recording and the integrity of entries: each transaction must be recorded in an unalterable manner.

• Permit the identification of owners: whether directly or indirectly, information on the identity of holders, the nature and number of shares held must be accessible.

• Ensure business continuity: a plan for the periodic backup and conservation of data must be implemented, particularly through external conservation devices.

3.3. Practical application to share transfer registers

Article R228-8 of the Code de commerce specifies that registers of registered shares may be kept on paper or, more efficiently, on any durable medium, such as a digitised system based on DEEP.

This method of recording also permits the creation of alphabetical files, which consolidate essential information on holders.

However, these files remain supplementary and cannot substitute for the official registers.

4. Blockchain technology in the service of DEEP

4.1. What is blockchain?

Blockchain is a technology for storing and transmitting information that is characterised by its transparency, security and absence of central authority.

This technology enables data to be exchanged and secured via a decentralised network, thereby eliminating the need for an intermediary to validate transactions.

4.2. Benefits of blockchain for data integrity

The use of blockchain in the context of DEEP brings several advantages:

• Immutability: once a transaction is recorded on the blockchain, it becomes impossible to alter it, thereby guaranteeing the integrity of the data.

• Verifiable transparency: although the blockchain is public, the use of encryption techniques protects sensitive data while making records verifiable.

• Enhanced security: through cryptographic algorithms such as sha-256, information is condensed into a 'hash', creating a unique identifier for each record. This process is irreversible: it is possible to verify the correspondence between the data and the hash, but impossible to reverse the process to extract the original data.

4.3. Choice of the term DEEP rather than 'blockchain'

The report by the Direction Générale du Trésor to the President of the Republic emphasises that the term DEEP was chosen for reasons of prudence and flexibility.

Indeed, by not limiting itself to blockchain technology alone, the legal framework remains open to future developments that might introduce new methods or protocols for securing data.

5. The Alex solution: a practical application of DEEP

5.1. Features and recording of transfers

At Alex, share transfer registers are kept via an entirely digitised solution. Each transfer is recorded in a structured database with the following information:

• Date and serial number: ensuring perfect traceability.

• Details of the parties: names and account numbers for the transferor and transferee.

• Number and nature of shares: for precise management of transactions.

• Specific remarks: for any relevant additional information.

This approach allows compliance with both Article L. 228-1 of the Code de commerce and Article R. 211-9-7 of the Code monétaire et financier, thereby ensuring regulatory compliance.

5.2. Technical infrastructure

Alex's solution is based on a robust and secure cloud infrastructure:

• Google Cloud Platform (GCP): hosting takes place on servers located within the European Union, thereby ensuring compliance with European regulations.

• Multiple backups: the database benefits from three backup copies distributed across different storage centres (Belgium, the Netherlands and Finland), as well as daily duplication via a data warehouse based on Snowflake, hosted by AWS in Paris.

• Security and continuity: these measures guarantee high availability and optimal resilience in the event of technical failure.

5.3. Integration of blockchain for the integrity of records

To ensure that records cannot be altered subsequently, Alex integrates blockchain technology:

• Creation of hash using sha-256: each transaction is condensed into a unique hash, which is then recorded on the blockchain.

• Real-time verification: at any time, it is possible to recalculate the hash from the stored data and compare it with that recorded on the blockchain, thereby ensuring the authenticity of the record.

• Decentralised security: by using blockchain, Alex relies on a decentralised network that prevents any fraudulent manipulation, even in the event of an attack on part of the system.

5.4. Choice of the Avalanche blockchain

Alex's solution uses the Avalanche blockchain, which offers several advantages:

• Speed: transactions are processed very rapidly, which is essential for a real-time solution.

• Reduced costs: transaction fees are low, which allows economical management even for a large volume of transactions.

• Security and decentralisation: a considerable number of validator nodes ensures that records cannot be altered by a malicious actor.

• EVM compatibility: Avalanche is compatible with the Ethereum Virtual Machine (EVM), which opens up the possibility of using smart contracts similar to those of Ethereum, whilst avoiding its cost and performance limitations.