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DEMATERIALIZATION

DEMATERIALIZATION. ACSDA Leadership Forum. J. Trezza October 2007. Agenda:. Cost/risk of paper certificates Why are certificates still around? U.S. dematerialization efforts Questions. Cost/risk of paper certificates. Cost : $300 million a year!

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DEMATERIALIZATION

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  1. DEMATERIALIZATION ACSDA Leadership Forum J. Trezza October 2007

  2. Agenda: • Cost/risk of paper certificates • Why are certificates still around? • U.S. dematerialization efforts • Questions

  3. Cost/risk of paper certificates • Cost : $300 million a year! - Printing, storing, insuring, auditing, shipping, replacing, etc. • Lost opportunities • Investors pay $50 million to replace lost ctfs - 1.2 million ctfs reported lost, stolen each year • Fraud: Stock loans and margin accounts • Dramatically increase the cost of corporate actions • Certificates outstanding: 400 million?

  4. Why do we still have certificates? • U.S. icon – a 250 year heritage • U.S. Depression survivors • Company pride • Industry flow • Mindset • Government regulations • Collector value • Disney: 480,000 holders with less than 5 shares

  5. My Advice - Go Paperless!

  6. Dematerialization Efforts Not a new concept: • Mutual Funds 1970s • US Government Agency & Treasuries 1980s • Municipal Bonds 1980s • Options & Futures 1990s • FNMA, GNMA This decade • Equities The Target

  7. Dematerialization Efforts Three major initiatives: • Book-Entry Only Securities • Destruction of Non-Transferable Securities Certificates • Direct Registration System (DRS)

  8. Dematerialization Efforts Book-Entry Only securities • Over 99% of new debt issues coming to market are in book entry form • All of the asset is held at DTCC • Investors can only hold through their broker • No physical certificates = less risk!

  9. Dematerialization Efforts Destruction of Non-Transferable Securities • 25,000 issues/1.2 million certificates • Not transferable for 6 years or more • Participants relinquish their positions • > 520,000 certificates destroyed 40,000 scheduled to be destroyed

  10. Dematerialization Efforts Direct Registration System • Third form of securities ownership: • Brokerage account • Certificate form • Registered directly of the books of the issuer • Investor mobility of assets • Electronic means to move asset • Implemented in 1995 • Less cost and risk then certificates

  11. Dematerialization Efforts Direct Registration System (DRS) • Exchange listing requirement: - After 1/1/07: all newly listed issues coming to market must be DRS eligible - Prior to 1/1/08: all existing listed issues must be DRS eligible • Over 6,000 listed issuers • State rules allow statement ownership • DTC to consider defaulting all transfers to statement

  12. Dematerialization Efforts Success To Date • 20 years ago: 32 million certificates in DTCC Vault • Today: 2.3 million certificates in DTCC Vault • > 40 million shareholders hold assets in direct registration • Request for physical certificates diminishing • Brokers voluntarily defaulting their transfer request to direct registration statements • Investors that receive a statement stay in statement form

  13. Dematerialization Efforts Success To Date • DRS continues to flourish • > 65,000 transactions a month • Up 100% from last year at this time • >520,000 certificates destroyed • Less physical transfers through the depository

  14. Dematerialization - Resources WWW.dtcc.com/leadership/issue/nomorepaper www.sifma.org

  15. Questions/Comments? Q&A Q&A Q&A Q&A

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