The Problem With Paper:
Paper certificates are issued by almost every publicly traded company in the United States. These paper certificates carry significant cost (for issuing, storage, shipping, and insurance), and hold their share of security risks. At the 2013 SSA national Conference, the SEC’s Moshe Rothman spoke of some of the risks that Superstorm Sandy exposed when it comes to paper certificates, including the potential for physical damage. The Depository Trust & Clearing Corporation (DTCC)’s securities vault suffered severe damage from the storm’s floodwaters.
These risks explain why physical certificates are quickly becoming a thing of the past. U.S. companies have issued paper certificates because of a requirement by state law, but these laws are in the process of changing. In March of 2013, The DTCC proposed changes in security processing to eliminate existing physical certificates, as well as end the issuance of new certificates in the US.
The Perks of Dematerialization:
Converting paper certificates to electronic holdings will help lower cost, minimize risk, and bring greater efficiency to the industry and the individual shareholder. According to the DTCC, “Paper certificates are undeniably ineffective. They slow transaction processing, whereas electronic records expedite the transfer and sale of securities, giving investors greater security and flexibility in purchases and sales of securities assets.”
Taking Your Company Paperless:
Arizona and Puerto Rico are currently the only remaining U.S. jurisdictions that require the issuing of paper stock certificates. Companies in other states now have the option of using the efficient, safer, and cheaper Direct Registration System (DRS). The DRS enables investors to register their assets on the books and records of the transfer agent in book-entry form. Investors receive a statement rather than a paper certificate. Use of the DRS is quickly growing.
The DTCC outlines how you can convert existing certificates, or request electronic ownership. Check out their guide to helping investors go paperless over here.