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State of Affairs of Dematerialization State of Affairs of Dematerialization

2 • • Agend a State of Paper Certificates DRS Paperless Legal Transfers CASS/Broker 2 • • Agend a State of Paper Certificates DRS Paperless Legal Transfers CASS/Broker Pipeline Restricted Securities Non-Transferable Issues Cost Basis Reporting Q&A

3 State of paper certificates 3 State of paper certificates

Physical Certificates Cost to You and Your Customers • > $300 million a year Physical Certificates Cost to You and Your Customers • > $300 million a year industry wide • Banks and brokers: > $50 million • Safekeeping, auditing, fees, escheatment, shipping, replacing, etc. • Investors: > $50 million • Lost and stolen: 1. 2 million certs annually 4 • Delays to market • Lost opportunities • Overseas Competition

Physical Certificates • Certs outstanding: 300 million? • Belgium: • Netherlands: 50 million 17 Physical Certificates • Certs outstanding: 300 million? • Belgium: • Netherlands: 50 million 17 million • DTC Vaults: • 3. 8 million (1. 2 non-transferable) • . 6 million customer certs 5 • ATT: 500, 000 certs still outstanding • 85% that leave the depository return

Dematerialization Efforts Around the World 6 Europe Asia-Africa Americas Denmark Australia Argentina Finland China Dematerialization Efforts Around the World 6 Europe Asia-Africa Americas Denmark Australia Argentina Finland China Brazil France India Mexico Greece Jordan Hungary Malaysia Iceland New Zealand Norway Pakistan Poland Singapore Slovenia South Africa Sweden Sri Lanka Switzerland Ukraine In-Progress Japan (2010) Netherlands Belgium USA Ireland

Dematerialization Benefits • Reduces cost/risk • Savings can be used on more pressing matters Dematerialization Benefits • Reduces cost/risk • Savings can be used on more pressing matters • Faster/less expensive processing • More timely receipt of corporate action proceeds • Reduction/elimination of lost assets • More efficient estate planning 7 • Faster to market • Economical solution to paper

8 My Advice: Go Paperless !!! 8 My Advice: Go Paperless !!!

9 DRS – Paper Be Gone! 9 DRS – Paper Be Gone!

DRS – Status • • 1, 100 CUSIPs 38 million shareholders (? ) 40, DRS – Status • • 1, 100 CUSIPs 38 million shareholders (? ) 40, 000 transfers a month Issuers default to DRS statements • 45 to date • Chevron, Microsoft, Intel, UPS, Starbucks, Metlife • Restricted securities 10 • Certs are the exception • You and Investors pay the cost

DRS: What’s up doc? • State legislature changes • Delaware, Missouri and Louisiana August DRS: What’s up doc? • State legislature changes • Delaware, Missouri and Louisiana August 2005 • One state/ one commonwealth to go: • AZ • PR • Exchange rule update • DRS as an Exchange listing requirement • Rule filing by Dec 2005 • DTC to consider defaulting all transfers to statement • New surety program 11 • $25 million per transaction

DRS –To do list! • Add functionality to Profile: • Move all full shares DRS –To do list! • Add functionality to Profile: • Move all full shares • Sell fractions • Close accounts • Are you in DRS? • Migrate your withdrawals to DRS statement format • Average savings of $175, 000 annually 12 • Education

13 Paperless Legal Transfers 13 Paperless Legal Transfers

Paperless Legal Transfers • Its not just paper ctfs we’re trying to eliminate • Paperless Legal Transfers • Its not just paper ctfs we’re trying to eliminate • Legal documents that accompany certain transfer types, such as: • Minor becoming of age • Trust transfers • TOD 14 • Cooperative industry effort: banks/brokers, agents, and regulators • Medallion coverage

Paperless Legal Transfers • Medallion signature guaranty: • signature is genuine • signer is Paperless Legal Transfers • Medallion signature guaranty: • signature is genuine • signer is the appropriate person • signer has legal authority • Front-office responsible for verifying and maintaining all paper documents • Investor benefits • Cut deposit costs: • Average firm $50, 000 per year • 90% of all DTC transfers are eligible 15 • Restricted transfers • Canadian agents

Paperless Legal Transfers • To do list: • Review your process • Eliminate more Paperless Legal Transfers • To do list: • Review your process • Eliminate more paper laden transfers • More expensive in 2006 16 • Consolidate deposits • Increase participation: • • Agents Issuers Brokers Issuer own transfer agents

17 CASS/Broker Pipeline 17 CASS/Broker Pipeline

CASS • Goal: Eliminate the presentment of certs to agents • Data • Images CASS • Goal: Eliminate the presentment of certs to agents • Data • Images • Phase I: • 1 Q 06 deliverable • Pre-verification • Cost per transaction 18 • Decrease rejects/rework • Phase II – sometime 2006

19 Restricted Securities 19 Restricted Securities

Restricted Securities Services • Very often held in physical form • 300, 000 certs Restricted Securities Services • Very often held in physical form • 300, 000 certs in the depository’s vault • Up-tick in physical processing • New regulations governing options • Painful to process: paperwork, opinions, regulatory filings • Restricted Securities Services 20 • Introduced in 2004 • Expansion in 2005

Restricted Securities Services • Web based engine • Tutorial – Turbo. Tax-like • Industry Restricted Securities Services • Web based engine • Tutorial – Turbo. Tax-like • Industry best practices • • Contact database Forms database Linked to DTC systems Ability to link to: 21 • TAs • Issuer’s counsel

22 Non-Transferable Issues 22 Non-Transferable Issues

Non-Transferable issues • 25, 000 issues/1. 2 million certs • 6 or more years, Non-Transferable issues • 25, 000 issues/1. 2 million certs • 6 or more years, participants can allow DTC to destroy certs • PREM function – move position to an internal DTC account • Escrow letter • Eliminates need to count, audit, and safekeeping certs • 75, 000 certificates destroyed • $100, 000 plus a year in savings 23 • $5. per position surcharge

24 Cost Basis Reporting 24 Cost Basis Reporting

Cost Basis: Can We Talk? • Do you provide to investors or other customers Cost Basis: Can We Talk? • Do you provide to investors or other customers today? • How? • DTC exploring providing such a service: 25 • • 1925 All entitlements Web based access IRS accepted

26 http: //www. dtcc. com/nomorepaper 26 http: //www. dtcc. com/nomorepaper

? ? ? ? ? ? ? ? ? The mandatory Q & A ? ? ? ? ? ? ? ? ? The mandatory Q & A session!!! ? ? 27 ? ? ? ? ? ? ? ? ?

? ? ? ? ? ? ? ? ? The mandatory Q & A ? ? ? ? ? ? ? ? ? The mandatory Q & A session!!! ? ? 28 ? ? ? ? ? ? ? ? ?

29 Thank you!!!!!!!!!!!!!!! Going Paperless 29 Thank you!!!!!!!!!!!!!!! Going Paperless