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Industry Joins Forces to Meet a Dematerialization Deadline
Noreen Culhane, executive vice president - Global Corporate Client Group, NUSE Euronext
A midwestern insurance company made history in March when it quietly became the final exchange-listed company in the U.S. to become eligible for a direct registration system (DRS). It was the last of more 7,300 issues in circulation to become DRS-eligible.
The transition of the company, Kansas City Life Insurance, took effect March 31, the deadline for making all equity issues on the major and regional exchanges eligible for direct registration.
“We are very pleased to have worked successfully with DTCC in achieving 100% DRS compliance by the March 31, 2008, deadline,” said Noreen Culhane, executive vice president – Global Corporate Client Group, NYSE Euronext. “All of our listed securities are now DRS eligible. It’s an important milestone that further improves the efficiency of shareholder registration and benefits our listed companies, their shareholders and the industry as a whole.”
Getting to 100%
DRS gives registered equity owners the option of holding their assets on the books and records of the transfer agent in book-entry form. Through DRS, assets can be electronically transferred to and from the transfer agent and broker/dealer.
The exchanges – New York, Nasdaq and the American, as well as the regional exchanges – adopted standards in 2006 requiring that all listed securities be eligible to participate in a system administered by a registered clearing agency such as The Depository Trust Company’s (DTC’s) Direct Registration System (DRS). These rules were effective for new listings beginning January 1, 2007, and were scheduled to become effective for all issues and companies on January 1, 2008. The exchanges later extended the deadline to March 31.
“Achieving 100% marks another milestone for the industry’s dematerialization drive and benefits all investors,” said Patrick Kirby, DTCC managing director, Asset Services. “The advantages of DRS include more accurate, quicker and most cost-efficient transfers, faster distribution of sale proceeds and a reduced number of lost or stolen certificates, which in turn reduces risk and cost.”
According to the Securities and Exchange Commission, the use of paper certificates “has long been identified as an inefficient and risk-laden mechanism” for holding and transferring securities.
Collaboration and next steps
“This was a massive undertaking on the part of all industry members, including the exchanges and the listed companies,” said Joseph Trezza, DTCC vice president, Asset Services. “We went to 7,300 DRS-eligible issues by the March deadline, from 1,400 in January 2007.” He noted that for many companies and their transfer agents, the DRS transition was a long and involved process. “In some instances, the transition included modifying a company’s by-laws and obtaining the approval of its Board of Directors.”
“Now that all issuers are DRS-eligible, our next step is to urge them to fully participate in DRS and automatically default to DRS statements rather than issuing certificates for new stock purchases,” said Trezza. “The savings to the issuer, as well as the industry, will be substantial.”
According to industry estimates, the annual cost of printing and issuing paper certificates total more than $300 million, which includes $49 million annually to replace lost or stolen certificates. @