BDUG Annual Conference DRS and Dematerialization

2. BDUG Annual ConferenceDRS and Dematerialization BDUG September 2008 The Depository Trust & Clearing Corporation

3. Agenda • DRS 101 • Exchange listing requirements • State of DRS • DRS Move-All Shares • Remuneration • Elimination of Certificated WTs

4. DRS 101 • Market Break of 1987 • Risk in the trade and settlement of assets in physical form • 2001 WTC attack • 2003 G30 Recommendation: Eliminate Paper!!! • Eliminate the issuance, use , transfer and retention of paper securities certificates without delay • Catch up to our international friends

5. DRS 101 • Introduced 1996 • SEC request, • The objective: • Eliminate the issuance, transfer and retention of paper securities certificates

6. DRS 101 • Create An Alternative Ownership Option for Securities Assets • Registered Stockholder - physical certificate • Street Name Registration – account with broker-dealer/custodian • DRS – security registered on books of issuer in book-entry form • Enhance the mobility of the securities assets • Electronic movement of asset between investor’s account on the books of the issuer and investor’s financial intermediary

7. DRS 101 • Direct Registration System (DRS) • Held in book-entry form (DRS) • Security is registered in customer name • Book-entry isn’t new (corp. debt, reg. munis, governments, options, etc.) • Customer receives mailings directly from issuer: • Statements, transaction advices, dividends, proxy, 1099s, etc. of ownership

8. DRS 101 • Fast forward to 2006: • Slow growth • 2,400 issues DRS eligible • Most due to corporate actions • Exchanges take the lead

9. Exchange Listing Requirements • DRS eligible: • January 1, 2007 - NEW ISSUES • January 1, 2008 - ALL ISSUES - extended • March 31, 2008 - ALL ISSUES • DRS eligible vs. participating

10. Exchange Listing Requirements Current Stats: • > 7,537 issues DRS eligible • >50,000 transactions a month • < 1,549 eligible only • >391 no longer offer certs. • Intel, UPS, MetLife, Nuveen, CBS, Sun Micro

11. State of DRS DRS Education Efforts: • SIFMA: BDUG, DTC, NASD, SEC, SIFMA, STA, SSA • Licensing requirements – Series 7, 24, Continuing Education • DRS Working and Ad Hoc Groups • DRS “Move All” • Dual SS/TIN • Comprehensive DRS information for firm

12. State of DRS • Educate Issuers, Exchanges, Broker/Custodians, Investors • Assist Issuers in complying with Exchange requirements • DRS statement only • Remove certificates from circulation

13. DRS “Move-All” • Two major enhancements: • Option to move-all shares • Dual SS/TIN • Eliminate 7,000 rejects monthly

14. DRS “Move-All” • Agent Remuneration: • Ad Hoc Group • 75% of agent cost (max $200k per TA) • $1.5 million in total cost • Nov 1, 2009 implementation

15. Insurance/Surety • Profile Insurance • $25 million per transaction ($25 per trans.) • Profile Surety (One) • $3/$6 million ($3150 a year) • NEWProfile Surety (Two) • $7.5/$15 million ($6,000 a year)

16. Elimination of Certificated WTs • What we are NOT doing: • Eliminating withdrawals • What we ARE doing: • Certificate proliferation

17. Elimination of Certificated WTs • Why get rid of certs? • Delays in trading/risk • Industry costs > $250 million • Inherent risk > $63 million • Catch up to our international friends: India, France, China, Australia, Argentina

18. Elimination of Certificated WTs • Ctfs. in DTC’s vault: • 20 years ago: 20.0 MM • Today: 2.3 MM • WTs processed: • 20 years ago: 27,000 ADT • Today: 1,200 ADT • Deposits processed: • 2002: 12,000 ADT • Today: 4,500 ADT 75% of certificates presented for transfer were issued in customer name within the previous 6 months

19. Physical Securities DTC WT’s Cost – 2008 Certificate WT: $66.00 Avg Agent fee (DMA): 14.00 Surcharge: 45.00 _________________________ Total: $125.00 DRS Statement WT: $5.00 _______________________ Total: $5.00 Additional cost for physical securities when DRS is available - $120.00 Annualized -$25.7 million

20. Elimination of Certificated WTs • Request for physical certificates is diminishing • 88% of WTs are for DRS eligible issues • DTCC participants voluntarily default WTs to direct registration statements • > 45% of all WTs are in DRS statement form • Investors that receive a statement stay in statement • <2% of investors that receive a statement request a certificate • Over 40 million shareholders

21. Elimination of Certificated WTs DTCC’s Ops and Planning Committee: • Jan 1, 2009: • Eliminate certificated WTs for DRS eligible/participating issues • Exception/Rush WTs • After July 1, 2009: • Eliminate certificated WTs for all DRS issues • 4Q09 – Sunset DMD Service • Continuing efforts to eliminate physical certificate processing

22. Elimination of Certificated WTs • After 1/12009, can you get a certificate? • Bearers • From the TA • If issuer allows, through Exception WT Processing • Costly

23. Going Forward By 2011: • Immobilization complete • Dematerialization 90% implemented • Little to no Physical Withdrawals = Less Deposits • Explore new processing models • Few certificates in system • Listed issues participating in DRS • Bearers matured • Non-Transferables destroyed

24. Questions/Comments? Q&A Q&A Q&A Q&A

25. Resources • Hand-outs in the back of room • www.bdug.org • www.dtcc.com/nomorepaper.com • www.sec.gov • www.sifma.org • www.shareholderservices.org • www.stai.org