The clearing industry’s utility says the securities industry will become almost paperless within three years, and those who insist on physical records will pay new fees.
The Depository Trust & Clearing Corp. says its "dematerialization" plan, slated to take full effect in the first quarter of 2015, "will support the industry’s move to a shorter settlement cycle."
Why?
"Handling physical securities, already a burden in today’s markets, could be a source of risk in a shorter cycle," according to the DTCC white paper, "A Proposal to Fully Dematerialize Physical Securities, Eliminating the Costs and Risks They Incur."
DTCC officials, who say they have had the support of the Securities and Exchange Commission, expect to make regulatory filings later this year. And they expect to start the dematerialization project by beginning new service options for deposit services and imposing new pricing options. These would include more fees for physical records. They would go into effect early next year.
Electronic record-keeping, DTCC officials argue, ultimately is much cheaper.
"The cost saving is difficult to exactly say. But we would definitely have cost savings that we would be able to pass along to our customers. And in the end, the investor will benefit as well," said Dan Thieke, DTCC managing director in asset services.
The risks of continuing with physical records, DTCC officials said, include a competitive risk. American markets could fall behind advanced Asian markets.
"Several markets have fully dematerialized already," Thieke said. "The U.S. seems like it is lagging these markets." For example, China no longer relies on paper securities. "As a result, stock theft and forgery are not much of problem in China," according to a DTCC release, "No More Paper: Paperless Around the World."
Other nations that are now paperless include India, New Zealand, Singapore, France and Greece, among others.
DTCC officials say the U.S. is trying to catch up. The American securities industry has been moving to electronic records for more than a decade. The problem of physical certificates is one that dates back to the 1960s, when the industry was, at times, overwhelmed by paper.
Today most U.S. securities documents are already offered in paperless form, including mortgage and corporate bonds, mutual funds and commercial paper. However, equities have been lagging in this movement to electronic records, DTCC officials said.
By 2015, if the industry embraces the DTCC’s dematerialization project, the industry will have a fraction of the physical records that exist today.
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