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State of Affairs of Dematerialization 2 Agenda State of Paper Certificates DRS Paperless Legal Transfers CASS/Broker Pipeline Restricted Securities Non-Transferable.

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Presentation on theme: "State of Affairs of Dematerialization 2 Agenda State of Paper Certificates DRS Paperless Legal Transfers CASS/Broker Pipeline Restricted Securities Non-Transferable."— Presentation transcript:

1

2 State of Affairs of Dematerialization

3 2 Agenda State of Paper Certificates DRS Paperless Legal Transfers CASS/Broker Pipeline Restricted Securities Non-Transferable Issues Cost Basis Reporting Q&A State of Paper Certificates DRS Paperless Legal Transfers CASS/Broker Pipeline Restricted Securities Non-Transferable Issues Cost Basis Reporting Q&A

4 3 State of paper certificates

5 4 Physical Certificates Cost 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 > $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

6 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 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 Certificates

7 6 Dematerialization Efforts Around the World EuropeAsia-AfricaAmericasIn-Progress DenmarkAustralia ArgentinaJapan ( 2010) FinlandChinaBrazilNetherlands FranceIndiaMexicoBelgium GreeceJordanUSA HungaryMalaysiaIreland IcelandNew Zealand NorwayPakistan PolandSingapore SloveniaSouth Africa SwedenSri Lanka Switzerland Ukraine EuropeAsia-AfricaAmericasIn-Progress DenmarkAustralia ArgentinaJapan ( 2010) FinlandChinaBrazilNetherlands FranceIndiaMexicoBelgium GreeceJordanUSA HungaryMalaysiaIreland IcelandNew Zealand NorwayPakistan PolandSingapore SloveniaSouth Africa SwedenSri Lanka Switzerland Ukraine

8 7 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 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

9 8 My Advice: Go Paperless !!!

10 9 DRS – Paper Be Gone!

11 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 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

12 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 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

13 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 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 13 Paperless Legal Transfers

15 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 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

16 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 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

17 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 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 17 CASS/Broker Pipeline

19 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 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 19 Restricted Securities

21 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 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

22 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 22 Non-Transferable Issues

24 23 Non-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 25,000 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 24 Cost Basis Reporting

26 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 26

28 27 The mandatory Q & A session!!! ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?

29 28 The mandatory Q & A session!!! ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?

30 29 Going Paperless Thank you!!!!!!!!!!!!!!!!!!!!!!!!!!!!!


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