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© DTCC DTCC Non-Confidential Yellow VAULT UPDATE AND DEMATERIALIZATION BDUG September 24, 2013
© DTCC DTCC Non-Confidential Yellow Sandy Aftermath and Recovery Super Storm Sandy hit us H A R D! Knocked out headquarters at 55 Water Street for months 1.8 million certificates underwater for 3 weeks Staff left with destroyed homes Others with no power for weeks Postal, Fed Ex and UPS facilities closed Local transfer agents were also hit Delayed implementation of important product upgrades Staff worked 6-7 days/week for months Irony: Occurred 3 months before Jersey facility was ready to open 2
[Classification] © DTCC Business Contingency Plan The plan worked as noted: Immediately transferred all settlement and asset servicing functions to Tampa Temporarily suspended physical processing Activated the contingency facility – DTCC Brooklyn Staffed DTCC Brooklyn as authorities and conditions permitted Contacted Balfor to recover certificates Negotiated with transfer agents to use LOI & attestation in lieu of unavailable certificates Support staff worked “remotely”
© DTCC DTCC Non-Confidential Yellow The Results What happened and where we are now: Tremendous industry support – our thanks to all! Back to “business as usual”, with few exceptions Moved to the Jersey City Facility in January All non-contingency Operations have left DTCC Brooklyn Balfor did a great job on the certificate recovery Working on completing the Vault certificate audits 4
[Classification] © DTCC Why Bring This Up? The costs to restore the physical securities is staggering: 1.8 million total certificates: 1.2 million Cede and 600,000 Custody 99.9% of all certificates recovered with… 2,426 still pending recovery – a great story! 344,000 of the 1.2 million (30%) are “non-transferable” 365,000 equity certificate. Many could have been dematerialized. This hurricane hit NY. Could have been a flood in Colorado, fire in California, tornado in Texas, etc. Did not learn enough from 9/11
© DTCC DTCC Non-Confidential Yellow Dematerialization: Recap DTCC issued an industry white paper, “A Proposal to fully Dematerialize Physical Securities, Eliminating the Costs and Risks they Incur”, on July 3 rd, DTCC proposed alternatives to its physical processing model to promote feedback about DTCC’s role as central service provider for physical certificates while highlighting the need to reduce the costs and risks associated with them. DTCC received strong overall support for advancing dematerialization as well as confirmation of DTCC to continue as central immobilization provider. Over the last several months DTCC has been promoting the white paper with key stakeholders including SIFMA, STA, SSA, AGC, ISITC and the ABA. A Cross Stakeholder Forum on Dematerialization was formed in April 2013 to begin the process of identifying the steps the industry can take to further reduce and eliminate certificates. 6
© DTCC DTCC Non-Confidential Yellow Four Main Pillars of Dematerialization Mandate DRS “Statement Only” Form Expand DRS for “Restricted Equities” Accelerate the destruction of non-transferable securities New Issues –Pursue an electronic Certificate “e-Cert” or concept to eliminate the need for the issuance for a physical certificate at the time of issuance for certain outlying asset types. 7
© DTCC DTCC Non-Confidential Yellow Direct Registration System (DRS) 8 DTCC in conjunction with industry stakeholders proposes changes to DRS to further the securities industry’s goal of full dematerialization of U.S. Equities. DRS uses “statements” as an alternative to physical certificates that reflect beneficial owner registration details as recorded on the books of the issuer/transfer agent. All listed U.S. equities were mandated to be DRS eligible in DRS has three forms of eligibility/participation. Issuers select an “eligibility type” that governs the handling of the respective issuance. –Issues eligible in certificate or statement form –Issues eligible in statement only form –Issues eligible in certificate only form, aka “DRS eligible but not participating”. These choices of eligibility were introduced to help encourage DRS usage in its early days.
© DTCC DTCC Non-Confidential Yellow Mandate DRS Participation New Issues - for any new listed equity seeking DTC eligibility, modify DTC eligibility requirements to include DRS participation and statement-only as a requirement. This also addresses "eligible but not participating" status for all new issues. –Allow for an exception for: Restricted Shares Certain foreign issues from countries whose laws don’t allow for book-entry ownership such as DRS and allows for the right to obtain a certificate. –Participants in the Cross Stakeholder Forum generally are supportive of DTCC moving forward on this. –The NYSE is in support of this but feels that a change to their listing requirements and a rule filing will be required. –NASDAQ is also supportive. Existing Issues- Leverage the Cross Stakeholder Forum to put forth recommendations to convert existing issues to “statement only” form. Look to expand on DRS to implement DRS + -Broker controlled DRS -Exchange of files -DTC as “hub” 9
© DTCC DTCC Non-Confidential Yellow Direct Registration System (DRS) by Eligibility Type 10 DRS Eligible Issues As of 4/28/08As of 12/28/12As of 9/16/13 Total Number of DRS-Eligible Issues 7,4567,1317,327 Issues Eligible in Certificate or Statement Form 5,4915,921 6,042 Issues Eligible in Statement Only Form Issues Eligible in Certificate Only Form (Not Participating) 1,
© DTCC DTCC Non-Confidential Yellow 2012 Physical Deposits by Type 11 Deposit CategoryDepositsDaily Ave. FAST DRS Eligible387, FAST Non DRS Eligible27, Non FAST Deposits34, FAST DRS Eligible not participating11, Total460,
© DTCC DTCC Non-Confidential Yellow Deposit & Withdrawal Average Daily Activity
© DTCC DTCC Non-Confidential Yellow Withdrawals and Deposits 13 Category Withdrawal (Thru Dec. 2012) Daily Avg. W/T Deposits (Thru Dec. 2012) Daily Avg. Deposits FAST DRS Eligible – Certificate or Statement Form123,109*490387,1721,542 FAST Non DRS Eligible - Certificates6, , Non FAST Eligible - Certificates411234, FAST DRS Eligible not Participating 11,88947 Total 130, ,8311,835 All of the above deposit volume is in physical form. Each deposit includes an average of 3 certificates per deposit. * All FAST DRS Eligible WT’s default to “Statement Only” form.
© DTCC DTCC Non-Confidential Yellow Next Steps 14 Continue to build consensus through the Cross Stakeholder Forum Confirm “proof of concept” for an expanded “DRS like” capability for Restricted Equities: DRS + Collaborate with SIFMA CAS to develop a plan to accelerate the destruction of Non-Transferable securities Work with DTCC’s Legal to identify ways to eliminate paper certificates for outlying asset types (e.g. CD’s and Global BEO’s). Continue to expand FAST – more TAs and issues Look at pricing options
© DTCC DTCC Non-Confidential Yellow Questions 15
© DTCC DTCC Asset Services Update Dan Thieke Managing Director October 23 rd, [Classification]
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