ComputerShare's letter on shortening the securities transaction settlement cycle: "we are concerned with the risk that broker-dealer practices and processes may restrict efficient access to the market for retail investors who exercise their right to be directly registered with the issuer"
Impact on retail investors:
As settlement cycles shorten, we are concerned with the risk that broker-dealer practices and processes may restrict efficient access to the market for retail investors who exercise their right to be directly registered with the issuer or may otherwise disadvantage registered shareholders. We have elaborated on a number of these concerns in our more detailed response below, on dematerialization, but would like to highlight key concerns where a shortened settlement cycle may amplify the risk to shareholders:
- A broker-dealer requirement that securities be held in book entry form, at the broker-dealer, prior to the execution of a sale order disadvantages registered shareholders’ timely access to the market to transact, creating price risk. This risk is particularly acute for certificated shareholders.
- Broker-dealer delays in processing investor requests to deposit their shares into book entry form at the broker-dealer, in connection with a sale, likewise creates price risk. This risk is relevant to both certificated and DRS shareholders, but again is particularly acute for certificated.
- Broker-dealer delays in processing investor instructions to withdraw securities from book entry form at the broker-dealer and move them to the transfer agent to be directly registered in the shareholder’s name, delays shareholder access to their assets and affects their ability to directly engage and exercise shareholder rights with the relevant issuer.
It is essential that the move to T+1, and any move to T+0, does not inhibit retail investors’ right to hold their shares directly on the register of the issuer, to receive direct legal title and its associated benefits, and to have timely access to the market. Progress towards greater dematerialization is one aspect in addressing these risks, however broader changes to achieve consistent and timely responses to retail investor instructions are also essential. Changes to the operating infrastructure at DTC to remove or reduce points of friction to timely processing will also be necessary, to provide a more real-time interface between DTC and transfer agents.
'We' get an inadvertent shout out:
A further concern exists where registered shareholders purchase securities, if the broker-dealer does not process an instruction to withdraw the purchased securities from the broker-dealer’s DTC account and submit to the transfer agent for registration in DRS in a timely manner. This delays the shareholder’s direct access to their securities, potentially impacting their ability to further transact with those securities as desired, or to engage with the issuer as a registered shareholder. This issue has received considerable public attention in the past year, with the focus on so-called meme stocks. A significant number of investors have elected to withdraw their securities from their broker-dealer accounts and to be registered in DRS form, to ensure that they can directly access their securities. Many have experienced delays in having the withdrawal instruction actioned by the broker-dealer
They talk about the DTCC: