SEC Approves Eliminating Paper Certificates for Withdrawals-by-Transfer
The Securities and Exchange Commission (SEC) has approved a rule change by The Depository Trust Company (DTC), a DTCC subsidiary, to eliminate issuing physical certificates for withdrawals-by-transfer (WTs) beginning January 1, 2009. The move will cover all issues that participate in DTC’s Direct Registration System (DRS), which currently includes more than 5,900 issues, or over 80% of the DRS-eligible issues.
DTC first announced plans to eliminate WTs of physical certificates in July when it filed the proposed change with the SEC. DTC will now process WTs in DRS statement form. (If permitted by an issuer, investors may take their DRS statement to their transfer agent and exchange it for a physical certificate.)
DRS statements
DRS is a book-entry system that enables investors to register their shares electronically with the issuing company or its transfer agents. Instead of a paper certificate, investors receive a statement of their holdings. In 2008, all the major and regional exchanges in the U.S. modified their listing requirements to mandate that in order to list on the exchange the security must be eligible for a direct registration system. (DTC is the only registered clearing agency operating a DRS.)
“Eliminating the need for DTC to issue physical certificates in withdrawals-bytransfer transactions is another advance for the industry’s drive toward dematerialization,” said Joseph Trezza, DTCC vice president, Operations. “More customers are requesting that WTs be processed as DRS statements rather than as physical certificates.” In November of this year, more than 44% of all WTs were processed as DRS statements. That compares to just 21% processed as DRS statements a year ago.
Both the industry and the U.S. government continue to encourage dematerialization of equity securities, because paper certificates are inefficient, expensive to issue and can be lost or stolen.
Move-all
In another push for increased efficiencies, DTC’s new “move-all” functionality facilitating the electronic transfer of issues between DRS and DTC participant accounts, went into full production in November 2008.
Currently, DRS handles more than 54,000 transactions a month, but some of these transactions continue to be rejected because data elements in the DRS account and the DTC participant account – including the number of shares to be transferred and the Social Security or taxpayer information number – don’t match.
The “move-all” functionality eliminates the need to match the number of shares being transferred. It will further streamline DRS processing problems and is expected to eliminate more than 5,000 rejects a month.
The new functionality gives DTC customers three options to use in processing transactions:
- Move all the investor’s full shares to the requesting DTC participant’s account;
- Move all the investor’s full shares to the requesting DTC participant’s account and liquidate any fractions in the account, sending the cash proceeds directly to the investor;
- Move all the investor’s full shares to the requesting DTC participant’s account, liquidate any fractions in the account, sending the cash proceeds directly to the investor, and close the investor’s DRS/DRIP or other plan accounts. Another enhancement, which will help decrease the number of rejects, enables transfer agents to accept two Social Security numbers or Tax Identity numbers for each DRS transfer submitted by a participant. This will cover joint investor accounts where there are two numbers on an agent’s record and will allow the transfer agent to match either one of the numbers, helping to decrease the volume of rejects.
“Putting move-all functionality into place and eliminating physical certificates for withdrawals-by-transfer were industrywide efforts and we could not have developed and implemented these changes without ongoing and detailed input from many segments of the industry,” said Trezza. @