In December 2015, Aflac Inc., a business holding company for American Family Life Assurance Company of Columbus (Aflac), achieved the milestone of full dematerialization of its physical stock certificates. It is the culmination of a process that began more than a decade ago when Aflac Inc. began using the Direct Registration System (DRS) of DTCC’s subsidiary, The Depository Trust Company (DTC).
“Our decision to finally go to full dematerialization – issuing our securities electronically only, without any paper involved – was enhanced by the fact that our processes were changed to default to book entry in 2011,” said Joan DiBlasi, Director Shareholder Services, Aflac Inc. “In previous years, we had issued thousands of physical stocks, but making that one important change decreased the number of physical stocks to only a few hundred.”
When a firm decides to default its securities to “book entry only” form, physical stocks will only be created upon request. As physical stock requests become less prevalent, more firms are encouraged to use full dematerialization for their securities.
“In the U.S., more than one million paper certificates are reported lost, stolen or counterfeited every year, costing investors several million dollars in replacement costs,” said Jon Ciciola, Director, DTCC “In addition, paper certificates are expensive to issue, store, ship and insure, and because of these challenges, markets in many countries around the world no longer issue paper securities at all.”
DRS gives investors a choice: They can hold securities in physical certificate form or use book entry form directly with the issuer, which leverages DTC’s connectivity with the Fast Automated Securities Transfer Program (FAST) transfer agents. This system provides accurate, quick and cost-efficient transfers between transfer agents and broker-dealers and reduces risk associated with physical securities certificates such as stolen, forged or counterfeit securities.
“When an investor holding a DRS statement decides to sell their shares, the process of moving the security back to their broker to execute the sale is fully electronic,” explained Ciciola. “This reduces — by several days — the amount of time to complete the process.”
DTCC has seen double digit growth in DRS since 2008, when the U.S exchanges mandated use of DRS for all listed equities.
Aflac Inc. is now among the growing number of firms who have recently gone completely paperless. While more than 1,000 companies – including some of the largest U.S. corporations, such as Coca Cola, Microsoft, Procter & Gamble, eBay, McDonalds, and the Whirlpool Corporation – have made their shares available for investors as paperless securities through DRS, there are still more than 6,000 listed companies that continue to offer investors physical certificates.
“Going paperless is easier and cheaper, and for our investors who want to buy shares in Aflac, it’s going to be much faster and more efficient,” DiBlasi said.
To learn more about DRS please visit: http://dtcc.com/matching-settlement-and-asset-services/securities-processing/direct-registration-system