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Stock certificates are going the way of the dinosaurs

Essentially, there are two ways to hold stock. You can have the paper certificate that says you are the owner of X number of shares of ABC company, or your ownership can be recorded in what's called "book entry," in other words, electronically. Your broker sends you a statement every month reflecting how many shares you own of a company.

The vast majority of stock ownership is held in electronic book entries. New York's Depository Trust Company, which keeps track of these things, says only one paper certificate is requested out of every 130 trades. That compares to one paper certificate requested for every 52 trades in 1997.

Nevertheless, many Americans love their stock certificates. The certificates, especially older ones, are quite ornate with elaborate drawings. Many people buy just one share and keep the certificate as a collector's item.

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Americans have billions of dollars worth of stock certificates stashed in safe-deposit boxes, attics, dresser drawers, closets -- you name it.

Last year we lost $28 billion of them -- at least according to claims filed with the Securities and Exchange Commission. Lost certificates are one reason the SEC is moving toward doing away with paper stock certificates. Even in the aftermath of the Sept. 11 destruction of much of New York's financial district, electronic book entries could be easily recovered.

"The electronic backups and duplication of resources that brokerages and other financial services have -- it's a double fail-safe system," says Dan Michaelis of the Securities Industry Association.

But the main reason for phasing out paper stock certificates, says Michaelis, is the move toward a shortened settlement cycle.

"It's now T+3, transaction plus three days. By 2004 we should be at T+1. If you want to make a trade, you have to get them out of your safe-deposit box and physically deliver them to your broker. Electronically, you just pick up the phone and place the order."

Experts say it will be years before stock certificates are phased out, but most say that day is coming.

Pierre Bonneau, CEO of Stock Search International in Tucson, Ariz., is one person who hopes it never happens.

"The conversion to electronic transaction is hitting a brick wall with investors who don't want to let go of their paper. It's the same as trying to get rid of paper money, and we can't do that. There's the theory and the reality."

-- Posted: Oct. 30, 2001

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