Certificate Issuance Will Cost More
On January 30, 2009 the SEC approved a rule change proposed by the NYSE on October 30, 2008, discontinuing the NYSE’s policy of prohibiting listed company transfer agents from charging fees for the issuance of stock certificates.
As people familiar with stock transfer know, the Direct Registration System (DRS) is a protocol allowing directly registered stock issued by companies or their transfer agent to occur in book-entry (statement-based) form, rather than via a stock certificate. It evolved over a decade culminating in listed companies having to have their issued shares DRS-eligible by January 1, 2008. We understand it is likely that all listed companies will additionally have to be DRS-participating soon…perhaps by the end of this year!
To avoid the shock to investors of having their physical stock certificate “taken away” from them by DRS, they were and are allowed by most companies to opt for a certificate if they want one instead of a DRS statement. Interestingly, we understand that well under 1% of investors aware of the certificate option actually choose this traditional approach, meaning almost everyone is happy with the same kind of statement they receive from their broker. Indeed, some companies (like Chevron, Intel and Hanesbrands) have implemented by-law changes that disallow new certificate issuance altogether – even if a shareholder requests one!
Again, though, the initial posture of the NYSE and SEC was to soften the “blow” of physical certificate loss, so not only was the certificate option continued but there was also an unwritten (but no less effective) NYSE policy in place that if a shareholder opted for a certificate there could be no extra charge for it assessed by the issuer or its transfer agent – which has now been repealed!
In sum: the broad acceptance of DRS by shareholders, the salubrious effect DRS has had on share movement and recordkeeping, the lowering of cost relating to these activities (including reduced insurance and other expenses associated with lost certificates) all have convinced industry authorities that certificates are truly the dinosaurs they thought they were. And if they can not be eliminated by simple evidence of their inefficiency, they likely can by merely costing more. That is the spirit behind this rule change, and we are all for it.