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2
AgendaAgenda
• State of Paper Certificates
• DRS• Paperless Legal Transfers• CASS/Broker Pipeline• Restricted Securities• Non-Transferable Issues• Cost Basis Reporting• Q&A
4
Physical CertificatesCost to You and Your Customers
• > $300 million a year industry wide
• Banks and brokers: > $50 million• Safekeeping, auditing, fees, escheatment, shipping,
replacing, etc.
• Investors: > $50 million • Lost and stolen: 1.2 million certs annually
• Delays to market
• Lost opportunities
• Overseas Competition
5
• Certs outstanding: 300 million?
• Belgium: 50 million• Netherlands: 17 million
• DTC Vaults:• 3.8 million (1.2 non-transferable)• .6 million customer certs
• ATT: 500,000 certs still outstanding
• 85% that leave the depository return
Physical CertificatesPhysical Certificates
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Dematerialization Efforts Around the World
Europe Asia-Africa Americas In-ProgressDenmark Australia ArgentinaJapan (2010)Finland China BrazilNetherlandsFrance India Mexico BelgiumGreece Jordan USAHungary Malaysia IrelandIceland New ZealandNorway PakistanPoland SingaporeSlovenia South AfricaSweden Sri LankaSwitzerlandUkraine
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Dematerialization - Benefits
• Reduces cost/risk
• Savings can be used on more pressing matters
• Faster/less expensive processing
• More timely receipt of corporate action proceeds
• Reduction/elimination of lost assets
• More efficient estate planning
• Faster to market
• Economical solution to paper certificates
10
DRS – Status
• 1,100 CUSIPs
• 38 million shareholders (?)
• 40,000 transfers a month
• Issuers default to DRS statements• 45 to date
• Chevron, Microsoft, Intel, UPS, Starbucks, Metlife
• Restricted securities
• Certs are the exception
• You and Investors pay the cost
11
DRS: What’s up doc?
• State legislature changes• Delaware, Missouri and Louisiana August 2005• One state/ one commonwealth to go:
• AZ• PR
• Exchange rule update• DRS as an Exchange listing requirement• Rule filing by Dec 2005
• DTC to consider defaulting all transfers to statement
• New surety program• $25 million per transaction
12
DRS –To do list!
• Add functionality to Profile:• Move all full shares
• Sell fractions
• Close accounts
• Are you in DRS?
• Migrate your withdrawals to DRS statement format • Average savings of $175,000 annually
• Education
14
Paperless Legal Transfers
• Its not just paper ctfs we’re trying to eliminate
• Legal documents that accompany certain transfer types, such as:• Minor becoming of age
• Trust transfers
• TOD
• Cooperative industry effort: banks/brokers, agents, and regulators
• Medallion coverage
15
Paperless Legal Transfers
• Medallion signature guaranty:• signature is genuine• signer is the appropriate person• signer has legal authority
• Front-office responsible for verifying and maintaining all paper documents
• Investor benefits• Cut deposit costs:
• Average firm $50,000 per year
• 90% of all DTC transfers are eligible• Restricted transfers• Canadian agents
16
Paperless Legal Transfers
•To do list:•Review your process
•Eliminate more paper laden transfers• More expensive in 2006
•Consolidate deposits•Increase participation:
• Agents
• Issuers
• Brokers
• Issuer own transfer agents
18
CASS
• Goal: Eliminate the presentment of certs to agents• Data
• Images
• Phase I:• 1Q06 deliverable
• Pre-verification
• Cost per transaction
• Decrease rejects/rework
• Phase II – sometime 2006
20
Restricted Securities Services
• Very often held in physical form• 300,000 certs in the depository’s vault
• Up-tick in physical processing
• New regulations governing options
• Painful to process: paperwork, opinions, regulatory filings
• Restricted Securities Services• Introduced in 2004
• Expansion in 2005
21
Restricted Securities Services
• Web based engine• Tutorial – TurboTax-like
• Industry best practices
• Contact database• Forms database• Linked to DTC systems• Ability to link to:
• TAs• Issuers• Issuer’s counsel
• Web based engine• Tutorial – TurboTax-like
• Industry best practices
• Contact database• Forms database• Linked to DTC systems• Ability to link to:
• TAs• Issuers• Issuer’s counsel
23
Non-Transferable issuesNon-Transferable issues
• 25,000 issues/1.2 million certs
• 6 or more years, participants can allow DTC to destroy certs• PREM function – move position to an internal DTC account
• Escrow letter
• Eliminates need to count, audit, and safekeeping certs
• 75,000 certificates destroyed• $100,000 plus a year in savings• $5. per position surcharge
25
Cost Basis: Can We Talk?
• Do you provide to investors or other customers today?
• How?
• DTC exploring providing such a service:• 1925
• All entitlements
• Web based access
• IRS accepted
• Do you provide to investors or other customers today?
• How?
• DTC exploring providing such a service:• 1925
• All entitlements
• Web based access
• IRS accepted
27
The mandatory Q & A session!!!
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The mandatory Q & A session!!!
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