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.
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
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