Post on 16-Dec-2015
COMPARISON OF THE PROCESSES OF PHYSICAL TRANSFERSVS
DRS TRANSFERS(from the perspective of a small transfer agent)
Physical DRS
(First DTC must train TA on how to use DRS password, work the system, etc.)
1. Shareholder calls broker and places
trade. Broker either executes trade
or waits for certificate to execute
trade, depending on customer
relationship.
1. Shareholder calls broker and tries to
place trade of the book entry position.
Physical DRS
2. Shareholder brings or sends
certificate to broker.
2. (a) broker tells shareholder they
need an account number from
the issuer (via the TA) which is
on the shareholder’s statement,
or, (b) broker has no idea what
DRS is, and tells shareholder to
call issuer or TA.
Physical DRS
3. Broker can send certificate
directly to TA, or to DTCC who
then sends it to TA for cancellation
and reissuance.
3. Shareholder calls either:
(a) the issuer, and the issuer tells shareholder to call TA, or,
(b) shareholder calls TA and TA tells them to check their statement for account number. If shareholder has statement he calls broker with account number. If he can not find statement, TA must send another statement to shareholder, with the resultant delay, unless caller is willing to identify themselves over the phone with address, shares and TIN, in which case TA gives the account number.
Physical DRS
New certificate goes out and
transaction is done.
4. Shareholder calls broker and gives him
account number
5. Broker must enter order into FAST system
with proper identifying information.
6. TA must go in and out of FAST system until
transfer appears. TA is sometimes kicked out
of the sign in screen on the system
during the transaction. Each time TA is
kicked off the system, TA must close all open
windows and open secure internet site from
scratch. Sometimes the system is too busy
and TA can not log in at all.
Physical DRS
Transaction is still done 7. If, and only if and when, the broker puts
up info, TA then can complete the
transaction on the system. TA must then
print out the transaction from
the system in order to first, compare it to the TA’s system to make sure the
information is correct, and second, to
keep a record of the transaction. It can
also be difficult to print out
the record of the transaction without
getting kicked out of the system.
…Continued
Still Going…
Physical DRS
The transaction has been done for so
long now that you can go out on your
boat.
8. After the TA completes the DRS transaction, the TA then must go into their own system to record the transfer info. If this were physical transfer, the TA’s data base would be updated automatically at the time of the transfer.
9. TA must create and send out statement, as does broker.
10. TA must balance position of DTC for
DTC, since DTC is unwilling to
balance it’s own position with the TA’s books
Still Going…
Physical DRS
The transaction is a distant memory,
and you are on vacation catching the
big one.
11 . If the position DTC posts does not match the
TA’s (as it often does not), much time and effort
has to be expended to find out where the
discrepancy lies, because DTC and the TA have to
reach out to all the participants that have used the
system to try to find out what caused the
discrepancy . Often, it is just items in transition,
but they have to be tracked down.
IMPORTANT NOTE:
Even though the TA is doing DTC’s work in
balancing DTC’s position - If the TA approves a
transaction or DTC’s balance incorrectly, even if it
was the broker that put it on the system in error, the
TA is responsible for straightening it out, with
possible financial consequences!
This does not happen under the physical certificate
processing scenario, because each certificate has a
unique identifying number and denomination, and the TA
is only balancing its own books. If it does not appear on
the TA’s books, even DTC will not assert it has a non-
existent certificate.
Physical DRS
Who pays for this streamlined process? Who pays for this cumbersome, time-consuming
process?
Physical DRS
TA can bill the submitting party, i.e., the
beneficiary of the process, for the
transaction.
Ha Ha! The joke’s on you!
No one pays you - especially not the
initiating, benefiting party, the broker.
Physical DRS
You are already paid. Now you
can pay your employees, your
rent, utilities, supplies, etc.
It has been suggested that maybe you can get paid by
the issuer when a shareholder deposits shares to a
broker, or vice versa.
Which is kind of like this: you buy a car from a GM
dealer, or, buy a used GM car from somebody, and 3
years later you decide to sell it to someone else. Can
you imagine getting GM to pay the transfer taxes, and
fees for re-registering your car?
Physical DRS
Environmental and Social Considerations:
1. Time consumed :
Whatever it takes to receive, cancel, re-issue,
and deliver one certificate.
2. Natural Resources Consumed:
The amount of a tree required to produce
one certificate for each transaction
3. Energy consumed:
The amount of energy consumed in printing and
mailing one certificate per transaction
Environmental and Social Considerations:
1. Time consumed:
Whatever it takes for the six zillion steps above, plus
the time spent pulling out your hair
2. Natural Resources Consumed:
The amount of trees it will take to produce a
statement for each transaction, a quarterly
statement and an annual statement,
for each book entry position
—FOREVER!
3. Energy Consumed:
The amount of energy consumed in the production
and delivery of a never-ending stream of statements
to all book entry positions
Physical DRS
In Summary:
1. Less time consuming, less aggravating, and has less parties involved
In Summary:
1. Keeps you busy so you are not roaming the streets
2. One-time process per transaction (presumably you don’t get kicked out of your own system repeatedly)
2. Maybe you can employ monkeys trained to get you back into the system five times per transaction for less money than people
3. Environmentally and socially responsible
3. Who needs trees anyway?
4. TA not required to balance DTCC’s
position off the TA’s books (nor is
the TA financially responsible for
errors initiated by brokers)
4. DTC is poor, and you are helping them out by doing their work for them
5. TA gets paid, and from the party that is actually benefiting from the transaction
5. See #4 above.
CAN IT WORK FOR THE SMALL AGENT?
1. DTC or its participants pay a fair price for the service we provide
2. DTC participates in, and shares the responsibility for, correcting and balancing it’s own positions.
3. DTC makes it’s new standards for being a FAST agent commensurate with the potential risk. After all, dematerialization is supposed to decrease, not increase risk to the market.
4. DTC completes it’s promised upgrades to it’s systems so hours are not wasted in performing DRS transactions.
5. Retail brokers get continuing education regarding their roll in DRS.
YES…IF: