US financial market participants must pull together to achieve complete securities dematerialisation and improve market stability, according to the Depository Trust & Clearing Corporation (DTCC) in a new whitepaper.
The transition from physical certificates to electronic records, DTCC argues, would reduce the risks and costs associated with manual processing and human touchpoints, while also increasing efficiency and resiliency at a time when automation is more important than ever.
DTCC says that less than 1 percent of assets it services through its subsidiary is still in physical form, but they represent $780 billion dollars in value.
In a new whitepaper ‘From Physical to Digital: Advancing the Dematerialisation of US Securities’ the post-trade market infrastructure provider outlines the “necessary steps” to reduce and ultimately eliminate certificated US securities.
These include forming working groups and setting a timeline between industry organisations and regulators that will be the first step to determine dematerialisation priorities.
DTCC also believes that the automation of high-touch processes should be converted from non-FAST agents to FAST.
The FAST programme minimises the movement of physical securities between the depository trust company (DTC) and transfer agents by reducing the number of physical certificates that need to be cancelled, re-registered, deposited, or withdrawn.
In terms of equity securities, all exchange-listed issues are required to have a FAST agent that is also a DTC DRS limited participant, who, in conjunction with DTC, provides access to the Direct Registration System (DRS).
Another step that is crucial in driving dematerialisation, DTCC says, is to require all newly-listed equities to conform to DRS statements only and convert all existing equities to DRS statements only.
In addition, DTCC recommends continuing to execute on DTCC’s Underwriting Rewrite project (to eliminate the need for physical certificates at the time of issuance) and to optimise processing of restricted securities to manage remaining inventory.
“The complete dematerialisation 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,” says Murray Pozmanter, DTCC managing director and head of clearing agency services.
DTCC believes that if the necessary steps are taken, the corporation can achieve full dematerialisation of 98 percent of all US physical certificates in the next three years.
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