BDUG Annual Conference DRS and Dematerialization
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Transcript of BDUG Annual Conference DRS and Dematerialization
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BDUG Annual ConferenceDRS and Dematerialization
BDUG September
2008The Depository Trust & Clearing Corporation
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Agenda
•DRS 101
•Exchange listing requirements
•State of DRS
•DRS Move-All Shares
• Remuneration
•Elimination of Certificated WTs
•DRS 101
•Exchange listing requirements
•State of DRS
•DRS Move-All Shares
• Remuneration
•Elimination of Certificated WTs
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DRS 101
• Market Break of 1987•Risk in the trade and settlement
of assets in physical form
• 2001 WTC attack• 2003 G30 Recommendation:
Eliminate Paper!!!•Eliminate the issuance, use ,
transfer and retention of paper securities certificates without delay
• Catch up to our international friends
• Market Break of 1987•Risk in the trade and settlement
of assets in physical form
• 2001 WTC attack• 2003 G30 Recommendation:
Eliminate Paper!!!•Eliminate the issuance, use ,
transfer and retention of paper securities certificates without delay
• Catch up to our international friends
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DRS 101
•Introduced 1996
•SEC request,
•The objective:
•Eliminate the issuance, transfer and retention of paper securities certificates
•Introduced 1996
•SEC request,
•The objective:
•Eliminate the issuance, transfer and retention of paper securities certificates
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DRS 101
1. Create An Alternative Ownership Option for Securities Assets
• Registered Stockholder - physical certificate
• Street Name Registration – account with broker-dealer/custodian
• DRS – security registered on books of issuer in book-entry form
2. Enhance the mobility of the securities assets
• Electronic movement of asset between investor’s account on the books of the issuer and investor’s financial intermediary
1. Create An Alternative Ownership Option for Securities Assets
• Registered Stockholder - physical certificate
• Street Name Registration – account with broker-dealer/custodian
• DRS – security registered on books of issuer in book-entry form
2. Enhance the mobility of the securities assets
• Electronic movement of asset between investor’s account on the books of the issuer and investor’s financial intermediary
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DRS 101
•Direct Registration System (DRS)• Held in book-entry form (DRS)
• Security is registered in customer name
•Book-entry isn’t new (corp. debt, reg. munis, governments, options, etc.)
•Customer receives mailings directly from issuer:• Statements, transaction advices, dividends,
proxy, 1099s, etc. of ownership
•Direct Registration System (DRS)• Held in book-entry form (DRS)
• Security is registered in customer name
•Book-entry isn’t new (corp. debt, reg. munis, governments, options, etc.)
•Customer receives mailings directly from issuer:• Statements, transaction advices, dividends,
proxy, 1099s, etc. of ownership
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DRS 101
•Fast forward to 2006:
•Slow growth
•2,400 issues DRS eligible
•Most due to corporate actions
•Exchanges take the lead
•Fast forward to 2006:
•Slow growth
•2,400 issues DRS eligible
•Most due to corporate actions
•Exchanges take the lead
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Exchange Listing Requirements
•DRS eligible:
• January 1, 2007 - NEW ISSUES
• January 1, 2008 - ALL ISSUES - extended
•March 31, 2008 - ALL ISSUES
•DRS eligible vs. participating
•DRS eligible:
• January 1, 2007 - NEW ISSUES
• January 1, 2008 - ALL ISSUES - extended
•March 31, 2008 - ALL ISSUES
•DRS eligible vs. participating
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Exchange Listing Requirements
Current Stats:
•> 7,537 issues DRS eligible
• >50,000 transactions a month
•< 1,549 eligible only
•>391 no longer offer certs.• Intel, UPS, MetLife, Nuveen, CBS, Sun
Micro
Current Stats:
•> 7,537 issues DRS eligible
• >50,000 transactions a month
•< 1,549 eligible only
•>391 no longer offer certs.• Intel, UPS, MetLife, Nuveen, CBS, Sun
Micro
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State of DRS
DRS Education Efforts:
•SIFMA: BDUG, DTC, NASD, SEC, SIFMA, STA, SSA
•Licensing requirements – Series 7, 24, Continuing Education
•DRS Working and Ad Hoc Groups• DRS “Move All”
• Dual SS/TIN
•Comprehensive DRS information for firm
DRS Education Efforts:
•SIFMA: BDUG, DTC, NASD, SEC, SIFMA, STA, SSA
•Licensing requirements – Series 7, 24, Continuing Education
•DRS Working and Ad Hoc Groups• DRS “Move All”
• Dual SS/TIN
•Comprehensive DRS information for firm
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State of DRS
•Educate Issuers, Exchanges, Broker/Custodians, Investors
•Assist Issuers in complying with Exchange requirements
•DRS statement only
•Remove certificates from circulation
•Educate Issuers, Exchanges, Broker/Custodians, Investors
•Assist Issuers in complying with Exchange requirements
•DRS statement only
•Remove certificates from circulation
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DRS “Move-All”
Two major enhancements:
•Option to move-all shares
•Dual SS/TIN
•Eliminate 7,000 rejects monthly
Two major enhancements:
•Option to move-all shares
•Dual SS/TIN
•Eliminate 7,000 rejects monthly
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DRS “Move-All”
Agent Remuneration:
•Ad Hoc Group
•75% of agent cost (max $200k per TA)
•$1.5 million in total cost
•Nov 1, 2009 implementation
Agent Remuneration:
•Ad Hoc Group
•75% of agent cost (max $200k per TA)
•$1.5 million in total cost
•Nov 1, 2009 implementation
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Insurance/Surety
•Profile Insurance
•$25 million per transaction ($25 per trans.)
•Profile Surety (One)
•$3/$6 million ($3150 a year)
•NEW Profile Surety (Two)
•$7.5/$15 million ($6,000 a year)
•Profile Insurance
•$25 million per transaction ($25 per trans.)
•Profile Surety (One)
•$3/$6 million ($3150 a year)
•NEW Profile Surety (Two)
•$7.5/$15 million ($6,000 a year)
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Elimination of Certificated WTs
•What we are NOT doing:
•Eliminating withdrawals
•What we ARE doing:
•Certificate proliferation
•What we are NOT doing:
•Eliminating withdrawals
•What we ARE doing:
•Certificate proliferation
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Elimination of Certificated WTs
•Why get rid of certs?
•Delays in trading/risk
• Industry costs > $250 million
• Inherent risk > $63 million
•Catch up to our international friends:
India, France, China, Australia, Argentina
•Why get rid of certs?
•Delays in trading/risk
• Industry costs > $250 million
• Inherent risk > $63 million
•Catch up to our international friends:
India, France, China, Australia, Argentina
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Elimination of Certificated WTs
•Ctfs. in DTC’s vault:• 20 years ago: 20.0 MM•Today: 2.3 MM
•WTs processed:• 20 years ago: 27,000 ADT•Today: 1,200 ADT
•Deposits processed:• 2002: 12,000 ADT•Today: 4,500 ADT
•Ctfs. in DTC’s vault:• 20 years ago: 20.0 MM•Today: 2.3 MM
•WTs processed:• 20 years ago: 27,000 ADT•Today: 1,200 ADT
•Deposits processed:• 2002: 12,000 ADT•Today: 4,500 ADT
75% of certificates presented for transfer were issued in customer name within the previous 6 months
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Physical Securities
DTC WT’s Cost – 2008DTC WT’s Cost – 2008
Additional cost for physical securitieswhen DRS is available - $120.00
DRS StatementWT: $5.00
_______________________ Total: $5.00
CertificateWT: $66.00 Avg Agent fee (DMA): 14.00Surcharge: 45.00_________________________ Total: $125.00
Annualized - $25.7 million
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Elimination of Certificated WTs
Request for physical certificates is diminishing
• 88% of WTs are for DRS eligible issues
• DTCC participants voluntarily default WTs to direct registration statements
• > 45% of all WTs are in DRS statement form
• Investors that receive a statement stay in statement
• <2% of investors that receive a statement request a certificate
• Over 40 million shareholders
Request for physical certificates is diminishing
• 88% of WTs are for DRS eligible issues
• DTCC participants voluntarily default WTs to direct registration statements
• > 45% of all WTs are in DRS statement form
• Investors that receive a statement stay in statement
• <2% of investors that receive a statement request a certificate
• Over 40 million shareholders
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Elimination of Certificated WTs
DTCC’s Ops and Planning Committee:
• Jan 1, 2009:
• Eliminate certificated WTs for DRS eligible/participating issues
• Exception/Rush WTs
•After July 1, 2009:
• Eliminate certificated WTs for all DRS issues
• 4Q09 – Sunset DMD Service
•Continuing efforts to eliminate physical certificate processing
DTCC’s Ops and Planning Committee:
• Jan 1, 2009:
• Eliminate certificated WTs for DRS eligible/participating issues
• Exception/Rush WTs
•After July 1, 2009:
• Eliminate certificated WTs for all DRS issues
• 4Q09 – Sunset DMD Service
•Continuing efforts to eliminate physical certificate processing
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Elimination of Certificated WTs
•After 1/12009, can you get a certificate?
• Bearers
• From the TA
• If issuer allows, through Exception WT Processing
• Costly
•After 1/12009, can you get a certificate?
• Bearers
• From the TA
• If issuer allows, through Exception WT Processing
• Costly
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Going Forward
By 2011:
• Immobilization complete
•Dematerialization 90% implemented
• Little to no Physical Withdrawals = Less Deposits
• Explore new processing models
•Few certificates in system
• Listed issues participating in DRS
• Bearers matured
• Non-Transferables destroyed
By 2011:
• Immobilization complete
•Dematerialization 90% implemented
• Little to no Physical Withdrawals = Less Deposits
• Explore new processing models
•Few certificates in system
• Listed issues participating in DRS
• Bearers matured
• Non-Transferables destroyed
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Questions/Comments?
Q&A
Q&A Q&A
Q&A
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Resources
• Hand-outs in the back of room
•www.bdug.org
• www.dtcc.com/nomorepaper.com
• www.sec.gov
• www.sifma.org
• www.shareholderservices.org
• www.stai.org
• Hand-outs in the back of room
•www.bdug.org
• www.dtcc.com/nomorepaper.com
• www.sec.gov
• www.sifma.org
• www.shareholderservices.org
• www.stai.org
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