Stock Transfer “Happenings”

The U.S. stock transfer industry has seen a lot of what one could call “tactical” adjustments in the past two years, following even more “strategic” changes in the 1990s   The latter, more fundamental developments were…

  • The advent of open-eligibility DRIP plans (aka Direct Stock Purchase Plans), sanctioned by the SEC in 1995 to keep brokers from wooing away “all” registered shareholders into street name ownership in the wake of a shortened T+3 trade settlement period
  • Establishment of the Direct Registration System (“DRS”) in 1997, with NCR using it to spin-off from AT&T, ushering in book-entry registered stock ownership outside of a DRIP or similar plan
  • The first proxy voting via telephone and the internet, and employee shareholder proxy distribution and tabulation via the intranet (at Microsoft)
  • The roll-out of sophisticated interactive voice response (IVR) telephone systems and internet-based self-service media, to enable issuers and shareholders to answer their own questions and transact share purchases and sales electronically
  • A concerted focus on abandoned property reporting and minimization, as states hungry for cash shortened their waiting periods before escheatment was required
  • Cross-border stock issues known as “global shares,” by-passing depositary receipts, floated by the likes of DaimlerChrysler, UBS and Hoerst Celanese

And with these fundamental changes came…

  • A mass exodus from the stock transfer business by banks who did not want to invest in the technology and other infrastructure requirements to keep pace with all these changes
  • An invasion into this vacuum in 2000 by a major foreign player, Computershare, who already had the technology and infrastructure in place on a global scale
  • The development of DRS (book-entry record keeping) add-on services like “Profile,” allowing brokers to tell transfer agents to move registered shares to investors’ brokerage accounts, relying on an assumption this instruction came from the shareholder
  • Broadridge Financial Solutions, the proxy distribution and tabulation services provider for “street” shareholders, offering to do this work for registered holders as well – a “turn-key” service for corporations which it is now performing for over 15% of America’s top 7,000 public companies (and climbing)
  • Expanded internet-based service media to match a) the appetites of maturing “Gen Xers,” and b) the steady disappearance of investors who only knew and wanted hard-copy

Which brings us to more tactical “happenings” in the past two years…

  • Computershare’s continuing acquisition of American transfer agents like SunTrust, U.S. Stock Transfer and UMB (and there are rumors it is going after another very large independent U.S. transfer agent as we speak)
  • The merger of Bank of New York and Mellon, an inadvertent move from a stock transfer standpoint because it happened at the corporate level, but a quite significant one nonetheless as it keeps Computershare from being the biggest in the U.S.(for the time being anyway) and looks to prolong the 100+ year tradition of Bank of New York and Mellon offering this service
  • Wells Fargo (really Norwest Bank’s former stock transfer business) also stepping meaningfully into the vacuum Computershare identified – picking up significant “name” corporate clients like it had not done before
  • Smaller agents, recognizing the vacuum too, elevating their own games to compete with the remaining big boys, like National City Bank (Cleveland), Continental Stock Transfer and Registrar & Transfer Company
  • DRS becoming an SEC-mandated registered stock issuance protocol for all stock issues as of 1/1/08
  • Notice & Access becoming an SEC-mandated proxy distribution and tabulation protocol as of 1/1/08

So what do we guess will happen in the next 12 months?

  • One more regional bank transfer agent will likely disappear, and its client portfolio will likely be snapped up by one of the remaining Big Four
  • Supporting this prior point, LaSalle Bank, a medium size Mid-Western stock transfer player for decades, was bought by Bank of America in 2007; and, while it is still offering stock transfer service under its LaSalle name, BofA could sell it at any moment like it did its original stock transfer portfolio in 1991
  • Bank of New York and Mellon will complete their merger at the stock transfer operating level, with minimal client or transactional “fall out,” we believe
  • Squabbles between the Securities Transfer Association (the trade group for commercial transfer agents) and the Depository Trust & Clearing Corporation (U.S. clearinghouse for most electronic stock transfers) over where Direct Registration System (DRS) responsibilities and liabilities truly lie will hopefully be arbitrated by the SEC, before procrastination on this front induces more small transfer agents to exit the business, and larger transfer agents become “distracted” from their work while these differences are resolved
  • More clarity should surface on whether a bill passed in the U.S. House of Representatives (not the Senate, yet) will increase stock transfer agent cost basis reporting requirements to a degree (involving system re-tooling) that will put some small agents out of business
  • Use of the “notice only” option within Notice & Access by corporations should double in the Fall 2008 “mini”-proxy season, and be used by three times as many companies in Spring 2009 than it was this year (and notable growth in its use will continue in 2010 and beyond)
  • Less competition in the stock transfer industry will encourage transfer agents to raise their prices, despite their having successfully arrested and even lowered their costs in recent years due to scale from mergers, more client self-service through the internet, more technology and automation applied to operating departments, less paper to deal with, and fewer clients having the transfer agent handle registered proxy work
  • The prior observation should make the assistance available from Shareholder Service Solutions® even more attractive to corporations in the months and years ahead

So fasten your seat belts!   A lot will continue to happen in this once quiet little industry, demanding increased attention from the corporate “C Suite.”