1 BDUG

2 BDUG Annual Conference DRS and Dematerialization BDUG September 2008 The Depository Trust & Clearing Corporation

3 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

4 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 o bjective: Eliminate the issuance, transfer and retention of paper securities certificates Introduced 1996 SEC request, The o bjective: Eliminate the issuance, transfer and retention of paper securities certificates

6 DRS 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

7 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

8 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

9 Exchange Listing Requirements DRS eligible: January 1, NEW ISSUES January 1, ALL ISSUES - extended March 31, ALL ISSUES DRS eligible vs. participating DRS eligible: January 1, NEW ISSUES January 1, ALL ISSUES - extended March 31, ALL ISSUES DRS eligible vs. participating

10 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

11 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

12 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

13 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

14 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

15 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)

16 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

17 Elimination of Certificated WTs 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

18 Elimination of Certificated WTs Ctfs. in DTC’s vault: 20 years ago: 20.0 MM Today: 2.3 MM WTs processed: 20 years ago:27,000 ADT Today: 1,200ADT 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: 1,200ADT 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

19 Physical Securities DTC WT’s Cost – 2008 Additional cost for physical securities when DRS is available - $ DRS Statement WT: $5.00 _______________________ Total:$5.00 Certificate WT: $66.00 Avg Agent fee (DMA):14.00 Surcharge:45.00 _________________________ Total:$ Annualized - $25.7 million

20 Elimination of Certificated WTs  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

21 Elimination of Certificated WTs 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

22 Elimination of Certificated WTs 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

23 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

24 Questions/Comments? Q&A

25 Resources Hand-outs in the back of room Hand-outs in the back of room

26 BDUG