DEMATERIALIZATION J. Trezza October 2007 ACSDA Leadership Forum

DEMATERIALIZATION

J. TrezzaOctober 2007

ACSDA Leadership Forum

Agenda:

•Cost/risk of paper certificates

•Why are certificates still around?

•U.S. dematerialization efforts

•Questions

•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!- 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?

•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?

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

•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

My Advice - Go Paperless!

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

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

Dematerialization Efforts

•Book-Entry Only Securities

•Destruction of Non-Transferable Securities Certificates

•Direct Registration System (DRS)

•Book-Entry Only Securities

•Destruction of Non-Transferable Securities Certificates

•Direct Registration System (DRS)

Three major initiatives:

Dematerialization Efforts

•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!

•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!

Book-Entry Only securities

Dematerialization Efforts

•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

•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

Destruction of Non-Transferable Securities

Dematerialization Efforts

•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

•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

Direct Registration System

Dematerialization Efforts

•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

•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

Direct Registration System (DRS)

Dematerialization Efforts

•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

•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

Success To Date

Dematerialization Efforts

•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

•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

Success To Date

Dematerialization - Resources

www.sifma.org

WWW.dtcc.com/leadership/issue/nomorepaper

Questions/Comments?

Q&A

Q&A Q&A

Q&A