bdug annual conference drs and dematerialization

2BDUG

BDUG Annual ConferenceDRS and Dematerialization

BDUG September

2008The Depository Trust & Clearing Corporation

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Agenda

•DRS 101

•Exchange listing requirements

•State of DRS

•DRS Move-All Shares

• Remuneration

•Elimination of Certificated WTs

•DRS 101

•Exchange listing requirements

•State of DRS

•DRS Move-All Shares

• Remuneration

•Elimination of Certificated WTs

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DRS 101

• Market Break of 1987•Risk in the trade and settlement

of assets in physical form

• 2001 WTC attack• 2003 G30 Recommendation:

Eliminate Paper!!!•Eliminate the issuance, use ,

transfer and retention of paper securities certificates without delay

• Catch up to our international friends

• Market Break of 1987•Risk in the trade and settlement

of assets in physical form

• 2001 WTC attack• 2003 G30 Recommendation:

Eliminate Paper!!!•Eliminate the issuance, use ,

transfer and retention of paper securities certificates without delay

• Catch up to our international friends

5

DRS 101

•Introduced 1996

•SEC request,

•The objective:

•Eliminate the issuance, transfer and retention of paper securities certificates

•Introduced 1996

•SEC request,

•The objective:

•Eliminate the issuance, transfer and retention of paper securities certificates

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DRS 101

1. Create An Alternative Ownership Option for Securities Assets

• Registered Stockholder - physical certificate

• Street Name Registration – account with broker-dealer/custodian

• DRS – security registered on books of issuer in book-entry form

2. Enhance the mobility of the securities assets

• Electronic movement of asset between investor’s account on the books of the issuer and investor’s financial intermediary

1. Create An Alternative Ownership Option for Securities Assets

• Registered Stockholder - physical certificate

• Street Name Registration – account with broker-dealer/custodian

• DRS – security registered on books of issuer in book-entry form

2. Enhance the mobility of the securities assets

• Electronic movement of asset between investor’s account on the books of the issuer and investor’s financial intermediary

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DRS 101

•Direct Registration System (DRS)• Held in book-entry form (DRS)

• Security is registered in customer name

•Book-entry isn’t new (corp. debt, reg. munis, governments, options, etc.)

•Customer receives mailings directly from issuer:• Statements, transaction advices, dividends,

proxy, 1099s, etc. of ownership

•Direct Registration System (DRS)• Held in book-entry form (DRS)

• Security is registered in customer name

•Book-entry isn’t new (corp. debt, reg. munis, governments, options, etc.)

•Customer receives mailings directly from issuer:• Statements, transaction advices, dividends,

proxy, 1099s, etc. of ownership

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DRS 101

•Fast forward to 2006:

•Slow growth

•2,400 issues DRS eligible

•Most due to corporate actions

•Exchanges take the lead

•Fast forward to 2006:

•Slow growth

•2,400 issues DRS eligible

•Most due to corporate actions

•Exchanges take the lead

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Exchange Listing Requirements

•DRS eligible:

• January 1, 2007 - NEW ISSUES

• January 1, 2008 - ALL ISSUES - extended

•March 31, 2008 - ALL ISSUES

•DRS eligible vs. participating

•DRS eligible:

• January 1, 2007 - NEW ISSUES

• January 1, 2008 - ALL ISSUES - extended

•March 31, 2008 - ALL ISSUES

•DRS eligible vs. participating

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Exchange Listing Requirements

Current Stats:

•> 7,537 issues DRS eligible

• >50,000 transactions a month

•< 1,549 eligible only

•>391 no longer offer certs.• Intel, UPS, MetLife, Nuveen, CBS, Sun

Micro

Current Stats:

•> 7,537 issues DRS eligible

• >50,000 transactions a month

•< 1,549 eligible only

•>391 no longer offer certs.• Intel, UPS, MetLife, Nuveen, CBS, Sun

Micro

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State of DRS

DRS Education Efforts:

•SIFMA: BDUG, DTC, NASD, SEC, SIFMA, STA, SSA

•Licensing requirements – Series 7, 24, Continuing Education

•DRS Working and Ad Hoc Groups• DRS “Move All”

• Dual SS/TIN

•Comprehensive DRS information for firm

DRS Education Efforts:

•SIFMA: BDUG, DTC, NASD, SEC, SIFMA, STA, SSA

•Licensing requirements – Series 7, 24, Continuing Education

•DRS Working and Ad Hoc Groups• DRS “Move All”

• Dual SS/TIN

•Comprehensive DRS information for firm

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State of DRS

•Educate Issuers, Exchanges, Broker/Custodians, Investors

•Assist Issuers in complying with Exchange requirements

•DRS statement only

•Remove certificates from circulation

•Educate Issuers, Exchanges, Broker/Custodians, Investors

•Assist Issuers in complying with Exchange requirements

•DRS statement only

•Remove certificates from circulation

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DRS “Move-All”

Two major enhancements:

•Option to move-all shares

•Dual SS/TIN

•Eliminate 7,000 rejects monthly

Two major enhancements:

•Option to move-all shares

•Dual SS/TIN

•Eliminate 7,000 rejects monthly

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DRS “Move-All”

Agent Remuneration:

•Ad Hoc Group

•75% of agent cost (max $200k per TA)

•$1.5 million in total cost

•Nov 1, 2009 implementation

Agent Remuneration:

•Ad Hoc Group

•75% of agent cost (max $200k per TA)

•$1.5 million in total cost

•Nov 1, 2009 implementation

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Insurance/Surety

•Profile Insurance

•$25 million per transaction ($25 per trans.)

•Profile Surety (One)

•$3/$6 million ($3150 a year)

•NEW Profile Surety (Two)

•$7.5/$15 million ($6,000 a year)

•Profile Insurance

•$25 million per transaction ($25 per trans.)

•Profile Surety (One)

•$3/$6 million ($3150 a year)

•NEW Profile Surety (Two)

•$7.5/$15 million ($6,000 a year)

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Elimination of Certificated WTs

•What we are NOT doing:

•Eliminating withdrawals

•What we ARE doing:

•Certificate proliferation

•What we are NOT doing:

•Eliminating withdrawals

•What we ARE doing:

•Certificate proliferation

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•Why get rid of certs?

•Delays in trading/risk

• Industry costs > $250 million

• Inherent risk > $63 million

•Catch up to our international friends:

India, France, China, Australia, Argentina

•Why get rid of certs?

•Delays in trading/risk

• Industry costs > $250 million

• Inherent risk > $63 million

•Catch up to our international friends:

India, France, China, Australia, Argentina

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•Ctfs. in DTC’s vault:• 20 years ago: 20.0 MM•Today: 2.3 MM

•WTs processed:• 20 years ago: 27,000 ADT•Today: 1,200 ADT

•Deposits processed:• 2002: 12,000 ADT•Today: 4,500 ADT

•Ctfs. in DTC’s vault:• 20 years ago: 20.0 MM•Today: 2.3 MM

•WTs processed:• 20 years ago: 27,000 ADT•Today: 1,200 ADT

•Deposits processed:• 2002: 12,000 ADT•Today: 4,500 ADT

75% of certificates presented for transfer were issued in customer name within the previous 6 months

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Physical Securities

DTC WT’s Cost – 2008DTC WT’s Cost – 2008

Additional cost for physical securitieswhen DRS is available - $120.00

DRS StatementWT: $5.00

_______________________ Total: $5.00

CertificateWT: $66.00 Avg Agent fee (DMA): 14.00Surcharge: 45.00_________________________ Total: $125.00

Annualized - $25.7 million

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Request for physical certificates is diminishing

• 88% of WTs are for DRS eligible issues

• DTCC participants voluntarily default WTs to direct registration statements

• > 45% of all WTs are in DRS statement form

• Investors that receive a statement stay in statement

• <2% of investors that receive a statement request a certificate

• Over 40 million shareholders

Request for physical certificates is diminishing

• 88% of WTs are for DRS eligible issues

• DTCC participants voluntarily default WTs to direct registration statements

• > 45% of all WTs are in DRS statement form

• Investors that receive a statement stay in statement

• <2% of investors that receive a statement request a certificate

• Over 40 million shareholders

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DTCC’s Ops and Planning Committee:

• Jan 1, 2009:

• Eliminate certificated WTs for DRS eligible/participating issues

• Exception/Rush WTs

•After July 1, 2009:

• Eliminate certificated WTs for all DRS issues

• 4Q09 – Sunset DMD Service

•Continuing efforts to eliminate physical certificate processing

DTCC’s Ops and Planning Committee:

• Jan 1, 2009:

• Eliminate certificated WTs for DRS eligible/participating issues

• Exception/Rush WTs

•After July 1, 2009:

• Eliminate certificated WTs for all DRS issues

• 4Q09 – Sunset DMD Service

•Continuing efforts to eliminate physical certificate processing

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•After 1/12009, can you get a certificate?

• Bearers

• From the TA

• If issuer allows, through Exception WT Processing

• Costly

•After 1/12009, can you get a certificate?

• Bearers

• From the TA

• If issuer allows, through Exception WT Processing

• Costly

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Going Forward

By 2011:

• Immobilization complete

•Dematerialization 90% implemented

• Little to no Physical Withdrawals = Less Deposits

• Explore new processing models

•Few certificates in system

• Listed issues participating in DRS

• Bearers matured

• Non-Transferables destroyed

By 2011:

• Immobilization complete

•Dematerialization 90% implemented

• Little to no Physical Withdrawals = Less Deposits

• Explore new processing models

•Few certificates in system

• Listed issues participating in DRS

• Bearers matured

• Non-Transferables destroyed

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Questions/Comments?

Q&A

Q&A Q&A

Q&A

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Resources

• Hand-outs in the back of room

•www.bdug.org

• www.dtcc.com/nomorepaper.com

• www.sec.gov

• www.sifma.org

• www.shareholderservices.org

• www.stai.org

• Hand-outs in the back of room

•www.bdug.org

• www.dtcc.com/nomorepaper.com

• www.sec.gov

• www.sifma.org

• www.shareholderservices.org

• www.stai.org

26BDUG

bdug annual conference drs and dematerialization

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