DTCC outlines steps to banish paper certificates

Source: DTCC

The Depository Trust & Clearing Corporation (DTCC), the premier post-trade market infrastructure for the global financial services industry, today issued its latest whitepaper, “From Physical to Digital: Advancing the Dematerialization of U.S. Securities,” outlining the necessary steps to reduce, and ultimately eliminate, certificated U.S. securities.

Dematerialization, the transition from physical certificates to electronic records, would reduce the risks and costs associated with manual processing and human touchpoints, as well as increase efficiency and resiliency across the industry at a time when automation is more important than ever. Today, less than 1% of assets serviced by DTCC, through the firm’s subsidiary The Depository Trust Company (“DTC”), are still in physical form, but they represent $780 billion dollars in value.

“The complete dematerialization of physical securities, fully transitioning away from paper to electronic records, will contribute to a more cost-effective, efficient, transparent, secure, competitive - and above all, resilient - marketplace for all,” said Murray Pozmanter, DTCC Managing Director and Head of Clearing Agency Services. “The world of online - not only cashless but contactless - commerce has accelerated and has forever reshaped every aspect of consumer behavior. Physical securities processing is no different, and it is well past the time we, as an industry, must move forward together toward a better solution that reduces risk to the marketplace.”

To date, many millions of physical certificates in the U.S. capital markets have been dematerialized, including exchange-traded equities and certain corporate and U.S. government debt. However, in many cases, it is still possible for stockholders to obtain physical certificates, which results in multiple manual touchpoints between beneficial owners, financial intermediaries, and transfer agents, among others.
In this latest whitepaper, DTCC proposes the next steps in the drive toward complete dematerialization. Much in the way the industry worked together cooperatively to successfully implement a T+2 settlement date in the U.S., the dematerialization effort will require industry working groups to come together to set priorities, address concerns, build consensus, and to collaborate to set aggressive, but realistic, goals and timelines.

“The success of this effort will require support from our clients and stakeholders, including industry organizations and our regulators. It will also require a full-scale and committed adoption of new business practices and technology platforms, as well as shifts in the legal landscape,” said Ann Bergin, DTCC Managing Director and General Manger Wealth Management Services and Asset Services. “The benefit of achieving complete dematerialization - reducing and ultimately eliminating paper - will lead to a significantly more efficient and resilient U.S. marketplace.”

With concerted effort and collaboration across the industry, including but not limited to banks, brokers/dealers, transfer agents, issuers, regulators, industry associations, and exchanges, DTCC believes that the industry can achieve full dematerialization of 98%+ of all U.S. physical certificates in the next three years.

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