From the early days of the New York Stock Exchange, when stocks were traded under a big tree, through the enormous expansion of financial markets in the 20th century. Stock certificates have long been the currency used to represent stock ownership in companies. Millions have been made from iconic stock trading, but in recent times the financial industry has started a movement to computerize stock trading, and more precisely, the stock certificate. The beautifully decorated staple of the financial industry is disappearing, we will investigate the many reasons for its decline.
First, in the United States, the electronic registry is replacing the stock certificate. Companies are no longer required to issue paper certificates. In fact, Sweden has taken a regulatory step further by abolishing share certificates altogether, the use of electronic shares having replaced the paper alternative. Much like the system before shares were registered in the name of the owner of the shares or in the name of the broker of the owner of the shares. It is important to clarify that share certificates exist in Sweden in certain cases. Private companies, non-profit organizations and other entities may still be entitled to paper certificates, only publicly traded companies have restrictions. However, in addition to government intervention as in these cases, the financial industry in North America has gradually eliminated stock certificates from most of its business transactions.
Only 1.6 million paper share certificates remain in the vault of the Depository Trust & Clearing Corporation, a large and respected transfer agent. The figures show a decline of 1.9 million last year, 8 million in 2000 and 32 million share certificates in 1990. The decline affects the entire industry and is the result of many advances, such as the Direct Registration System. DRS was a breakthrough that brought about the computerization of markets in the 1990s. The system allows corporations, brokers, and regulators to track shareholders electronically. SEC regulators gave the DRS another boost last year by requiring that all major public companies be eligible for inclusion in the electronic system’s record-keeping system.
Second, corporations are taking it upon themselves to stop using stock certificates. A growing number of publicly traded companies have taken the plunge, including big names (Sears, Visa, and Intel) that simply don’t care about certificates anymore. These few corporations remain a minority, but as the decline in demand for certificates continues, it is very likely that we will see an extension of the movement to all electronic share transfers.
Many of these changes are driven by lower investor demand for certificates; investors prefer the ease and convenience of immaterial substitutes. The emergence of low demand for paper versions has created a hostile environment for the few who wish to receive a paper copy of their actions. Prices to receive paper copy of stock ownership from online brokers are outrageous, figures range from $50-500 to produce copies of stock certificates. Although this fee can be avoided by registering shares directly with the transfer agent (as opposed to “street name” where the brokerage firm technically owns the shares) and having them issue the certificate. However, investor demand, as well as DTCC regulation, are the main cause of the high rate situation.
The stock certificate was an icon symbolizing prosperity, growth, and opportunity. However, due to modernizing stock markets, investor demand and, to a small extent, government regulation, the popular symbol has dwindled to the brink of extinction.