Skip to main content

by Edward C. Kelleher

The number of certificates in The Depository Trust Company's (DTC) vaults is dwindling - much to the industry's delight. In January 2011, transferable certificates for the first time dropped below the one million mark to 995,560. This compares with a high of more than 32 million in 1990.

The ongoing reduction in certificates is part of DTC's multi-faceted dematerialization plan aimed at eliminating paper certificates in the securities industry.

"Dropping below the million-certificate mark is a significant milestone for DTC and the industry in our push toward dematerialization," said Daniel Thieke, DTCC vice president, Asset Services. "It serves our customers and individual investors, and helps move the U.S. markets closer to the ultimate goal of a paper-free securities industry freed from the inefficiency, cost and risk associated with paper certificates."

Bearer bonds

The latest decline in the number of certificates is attributed to several factors, according to Joseph Clemente, DTCC product manager, Asset Services. One primary driver is the drop in the number of bearer bonds in the vaults, the bulk of which have matured or are about to mature. (The United States stopped issuing new bearer bonds in 1982.)

"In 1990, DTC had 32 million certificates in its vaults. Of those, 24 million were bearer bonds," Clemente said. "Today, DTC holds just over 132,800 bearer bonds, and most will mature in a few years."


Clemente cited another reason for the drop in certificates - DTC's FAST (Fast Automated Securities Transfer) program. FAST minimizes certificate movements and streamlines transfer processing by placing a customer's assets in the custody of a FAST transfer agent, reducing the risk associated with lost securities, as well as the costs of insuring, handling and shipping physical certificates. DTC, in turn, maintains a jumbo balance certificate registered in its nominee name - one for each issue - with the transfer agent; balances are adjusted automatically each day.

"More and more new issues are going with FAST, particularly municipal issues and issues from the bigger banks," said Clemente. "In January 2011, there were just 124,000 regular municipal issue certificates in the DTC vaults compared to 1.8 million issues in January 2003."

DRS factor

Use of DTC's Direct Registration System (DRS), which enables investors to register ownership of their shares electronically with either the issuing company or its transfer agents, has also helped reduce the issuance of paper certificates. As of March 2008, all new issues on U.S. exchanges were required to be DRS-eligible. If a request for a Withdrawal-by-Transfer is received for one of these issues, DTC automatically defaults the request to a DRS statement, eliminating the participant's ability to request a certificate through the depository.

Shredding program

Another major contributor to the dwindling vault population, although not the transferable certificates, is DTC's ongoing destruction of non-transferable certificates. Non-transferable certificates are those for which the service of a transfer agent is no longer available, and the majority of them are worthless because they were issued by companies now out of business.

In 2004, DTC began the destruction of thousands of non-transferable certificates, after receiving the go-ahead from the Securities Exchange Commission (SEC). At the time, DTC vaults held 1.4 million non-transferable certificates. The shredding program has dramatically reduced the volume of these certificates. In 2010, DTC destroyed 135,000 of them, bringing the total left in the vaults to just 450,000 in January 2011. @