DTC Proposes Dematerialization for All Securities in the U.S.

DTCC (“DTC”) released a press release on March 12, 2013 regarding the proposed steps to continue with the dematerialization of physical securities in the United States. The proposals specifically relate to physical certificate elimination, which will help to lower costs and mitigate risk for the individual shareholder and the issuer.

In the press release, DTC mentions four main “pillars” of focus to achieve dematerialization. Here are the four pillars:

  • Leveraging the Direct Registration System (DRS) to issue statements of book-entry holdings rather than physical certificates,
  • Expanding dematerialization to allow for “restricted equities”,
  • Reduce the required holding time of securities that are non-transferable or “cancelled” from six to four years, and
  • Eliminate the need to issue physical certificates at the time of issuance.

DTC claims that full dematerialization of physical certificates would reduce potential costs and risks, including supernatural events, such as Superstorm Sandy, which effected DTC’s operations significantly.

DTC has received support from the Securities Transfer Association (“STA”), Securities Industry and Financial Markets Association (“SIFMA”), and other industry associations in regards to the dematerialization effort. However, to accomplish its goals, DTC must receive approval from the SEC on these “pillars”. With that noted, DTC has already received approval on the creation of DRS, but what they plan to do with it, is another story.

If restricted equities become approved for dematerialization, other inherent risks and liabilities, such as identity theft and computer crimes, may increase the liability that professional recordkeepers such as transfer agents, brokers and clearing firms will have to bear. Internet crime is a growing concern all across the world. If data is lost or hacked, all might be compromised with shareholder accounts. The SEC’s main purpose is to protect shareholder’s interests. It will be interesting to see what the SEC decides. View DTC Press Release

Colonial Stock Transfer is a DRS & FAST/DWAC eligibile transfer agent. This means your company, once a client of Colonial, can apply for DRS & FAST/DWAC services. Call 877-285-8605 to speak with a representative about Colonial’s services.

Dan Carter
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