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Intel Among First to go Paperless Following Delaware Law Change
As the first splash in what many securities industry executives hope will grow into a swelling stream, Intel Corporation announced that as of August 1, it began issuing its common stock only via paperless electronic ownership records.
Now that the state of Delaware has eliminated its law requiring companies incorporated in the state to issue paper stock certificates, Intel Corporate Affairs Group Senior Attorney Doug Stewart said the company plans to issue all its shares through the Direct Registration System (DRS). DRS allows investors to keep ownership of their shares registered electronically directly with the issuing company or its transfer agent, so that no paper certificates are involved. Shares can also be held electronically in “street name” through a broker.
Intel and its transfer agent, Computer- share Investor Services, said that as of August 1 – the date Delaware’s new law took effect – the company began issuing all new shares electronically through DRS. While Intel has been steadily issuing its stock through DRS for several years, the company also has a sizeable percentage of its stock outstanding in paper form – represented by about 400,000 certificates – because of Delaware’s law.
Change by Attrition
“Intel is making the switch to electronic ownership easy,” said Computershare Transfer Operations Manager Lisa Brooks. “Intel shareholders are not required to turn in their physical certificates,” she explained, “although they can do so at any time if they want to take advantage of electronic ownership. However,” she noted, “from now on Intel will simply no longer issue paper certificates for any transactions involving its stock.”
Shareholders who purchase Intel stock will receive a statement of electronic ownership rather than paper certificates that have to be placed in safekeeping. DTCC’s depository, which manages DRS for all markets, notified its bank and broker/dealer customers that the transfer of ownership on all Intel shares would result in the issuance of DRS statements, not paper certificates.
In the first half of 2005, according to DTCC Senior Product Manager Joe Trezza, the depository handled nearly 4,000 requests from Intel shareholders or their brokers for paper certificates following a transaction versus fewer than 100 requests for DRS statements. “Obviously, this is going to change, and it will affect our business as well,” he said.
And Then There Were…Two
After Delaware passed HB 150 allowing public companies incorporated there to issue uncertificated shares, Louisiana and Missouri enacted similar legislation. This leaves Arizona and Puerto Rico as the only remaining U.S. jurisdictions that still require public companies incorporated there to issue paper stock certificates.
Delaware's new law (HB 150) went into effect August 1, 2005. Louisiana's new law (HB 645) became effective on Aug. 15, and Missouri's bill (HB 678) goes into effect on Aug. 28.
For readers who want more information, here are the Internet sites that offer details for each state:
- Delaware- Delaware HB 150
- Louisiana - Louisiana HB 645
- Missouri - Missouri HB 678
“More than half of all public companies in the United States – including Intel and numerous other Fortune 500 companies – are incorporated in Delaware,” said Janet Wynn, DTCC’s managing director for Asset Services. “Consequently, Delaware’s elimination of its requirement for paper certificates is likely to prompt many companies to switch to electronic share ownership. Intel is taking the lead.”
Since Delaware changed its law, two other states that also required companies to issue paper certificates – Missouri and Louisiana – have also revised their statutes. (See related article.)
Nearly 123,000 of Intel shareholders have physical stock certificates, compared with 4,289 whose ownership is electronically recorded through DRS. However, Stewart noted, most Intel stockholders hold their positions as beneficial owners via brokers – in other words, in “street name.” “So they’re unlikely to be directly affected by this,” he said.
More than 1,000 public issues are now part of the book-entry DRS, and the number of investor accounts holding DRS securities is in the neighborhood of 38 million.
“We anticipate that many other public companies will also convert their share ownership to paperless electronic registration,” Wynn said. “It’s safer, cheaper and more convenient for investors than dealing with paper. It also seems appropriate that Intel be among the first companies to do this,” Wynn added, “because Intel’s computer chips help us manage paperless markets.”
Editor’s Note: For more information on dematerialization, send an email to nomorepaper@dtcc.com or contact Joe Trezza at 212 855 4400. @