Industry Takes Another Step To Eliminate Paper Certificates
The Depository Trust Company (DTC), a DTCC subsidiary, will eliminate physical certificates for withdrawals-by-transfer (WTs) for all eligible but non-participating issues in DTC’s Direct Registration System (DRS) beginning July 1, 2009.
The change was approved by the U.S. Securities and Exchange Commission (SEC) in December 2008 when it also approved eliminating issuing physical certificates for WTs for all DRS-participating issues beginning January 9, 2009. In place of certificates, DTC began processing WTs in DRS statement form only.
“There are more than 1,200 DRS-eligible but non-participating issues that will be affected by this rule change,” said Joseph Clemente, DTCC product manager, Asset Services. “Unfortunately, they have joined neither the 5,300 DRS-eligible issues that already offer the statement option, nor the 406 issues that have com-pletely eliminated physical certificates.”
Ongoing effort
In a coordinated effort to convince these exchange-listed issuers to participate in DRS, DTCC has worked with the industry, including the Securities Industry and Financial Markets Association (SIFMA), the Securities Transfer Association (STA), and the Shareholders Services Association (SSA), to explain and promote the benefits of DRS.
DTC first announced plans to eliminate WTs of physical certificates in July 2008 when it filed the proposed changes with the SEC.
DRS is a book-entry system that enables investors to register their shares electronically with the issuing company or its transfer agent. 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.)
Dematerialization advances
“This is all part of DTCC and the industry’s drive toward dematerialization,” said Clemente. “It will further reduce the risk and cost of processing, tracking and maintaining physical certificates.”
Both the industry and the U.S. government continue to encourage dematerialization of equities securities, because paper certificates are inefficient, expensive to issue and can be lost or stolen.
Those DTC customers who insist on receiving a physical certificate after July 1 will need to use the Rush Withdrawal by Transfer (RWT) process. The RWT charge for each certificate is $500. That’s compared to $5 for each DRS statement issued.
In another dematerialization move, DTC will eliminate its Direct Mail by Depository (DMD) service during the fourth quarter of 2009 and will no longer mail physical certificates to investors or a third party. For issues where the transfer agent offers Direct Mail by Agent, customers can continue to have the agent mail a physical certificate. @