Since the early days of the New York Stock Exchange, when stocks were traded under a large tree through the enormous expansion of financial markets in the 20th century. Stock certificates have been the currency used to represent share ownership in companies. Millions have been made from the iconic trade of stocks but in recent times the financial industry has started a move to computerize the trading of stocks and more precisely the stock certificate. The beautifully decorated staple of the financial industry is becoming no more, we will investigate the multiple reasons for it's decline.
Firstly in the United States electronic registration is supplanting 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 entirely, use of electronic shares have replaced the paper alternative. Very much like the system before shares are either registered in the share owner's name or in the share owner's broker's name. It is important to clarify that share certificates do exist in Sweden in certain cases. Private companies, non-profits and other entities may still entitle paper certificates only publicly traded companies have restrictions. However besides government intervention as in these cases, the financial industry in North America has gradually removed stock certificates from the majority of it's business dealings.
Just 1.6 million paper stock certificates remain in the vault of the Depository Trust & Clearing Corporation, a respected and large transfer agent. The numbers show a decrease from 1.9 million last year, 8 million in 2000 and 32 million stock certificates in 1990. The decline is industry wide and are a result of many advances such as the Direct Registration System. The DRS was an advance brought along by the computerization of markets in the 1990's. The system allows corporations, brokers and regulators to keep track of shareholders electronically. SEC regulators gave DRS another push last year by requiring that all major public companies be eligible for inclusion in the electronic system record keeping system.
Secondly, corporations are taking it upon themselves to discontinue using stock certificates. A growing number of publicly traded companies have taken the move among them are big names (Sears, Visa and Intel) that simply do not deal with certificates anymore. These few corporations are still a minority but as waning demand for certificates continues we will very likely see an extension of the move to all electronic share transfers.
Many of these changes are driven by lowered demand from investors for the certificates, investors prefer the ease and convenience of non-material substitutes. The emergence of low demand for the paper versions has created a hostile environment for the few that wish to receive a paper copy of their shares. Prices to receive the paper copy of one's stock ownership from online brokers are outlandish, figures range from -500 to produce stock certificate copies. Though this fee can be avoided by registering shares directly with the transfer agent (as opposed to "street name" where the brokerage firm technically holds the shares) and having them issue the certificate. Nevertheless, investor demand as well as DTCC regulation are the root cause the high fee situation.
The stock certificate was an icon that symbolized prosperity, growth and opportunity. However due to the modernisation of stock exchanges, investor demand and in a small part government regulation the popular symbol as dwindled to the brink of extinction.
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