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: