U.S. financial market participants must come together to achieve full dematerialization of securities and improve market stability, according to the Depository Trust & Clearing Corporation (DTCC) in a new white paper.
According to DTCC, the transition from physical certificates to electronic records would reduce the risks and costs associated with manual processing and human touchpoints, while increasing efficiency and resilience at a time when automation is more important than ever. .
DTCC says less than 1% of the assets it manages through its subsidiary are still in physical form, but they are worth $780 billion.
In a new white paper “From Physical to Digital: Advancing the Dematerialization of US Securities,” the post-trade market infrastructure provider outlines the “necessary steps” to reduce and ultimately eliminate certified US securities.
This includes forming working groups and setting a timetable between sector organizations and regulators which will be the first step in determining dematerialization priorities.
DTCC also believes that the automation of high interaction processes should be converted from non-FAST agents to FAST.
The FAST program minimizes the movement of physical securities between the custodial trust company (DTC) and transfer agents by reducing the number of physical certificates that must be cancelled, re-registered, deposited or withdrawn.
In terms of equity, all publicly traded shows must have a FAST Agent who is also a DTC DRS Limited Participant, which, in conjunction with DTC, provides access to the Direct Recording System (DRS).
According to DTCC, another crucial step to foster dematerialization is to require all newly listed shares to comply with DRS statements only and to convert all existing shares to DRS statements only.
In addition, DTCC recommends continuing to execute DTCC’s subscription rewrite project (to eliminate the need for physical certificates at the time of issuance) and optimizing the processing of restricted titles to manage remaining inventory.
“The complete dematerialization of physical securities, moving completely from paper to electronic records, will contribute to a more profitable, efficient, transparent, secure, competitive – and above all resilient – market for all,” said Murray Pozmanter, DTCC Managing Director and Head of clearing house services.
DTCC estimates that if the necessary steps are taken, the company can achieve complete dematerialization of 98% of all US physical certificates within the next three years.