1. Analyzing T+2 & Dematerialization among Issuing Companies
Moderator:
Kevin P. Burns
Speakers:
Jon Ciciola, DTCC
Kim McKiernan, The Walt Disney Co.
Bernadette Maffei, Comcast Corp.

2. Shortening the Settlement Cycle & Dematerialization
July 20, 2016

3. Panelist
Jon Ciciola Director, Settlement and Asset Services DTCC Bernadette Maffei Director Shareholder Services Comcast Corporation Vice President of SSA
Kim McKiernan Sr. Manager, Investor Relations
The Walt Disney Company Kevin Burns - Moderator Sr. Industry Analyst
Computershare

4. Shortening the Settlement Cycle The Move to T+2

5. Background Industry Engagement
Industry Steering Committee
Industry Working Group
Industry Sub-Working Groups
Industry T+2 Requirements document published June 2015
(All Documents are available at and the SSA website under “Hot Topics”)
Including target implementation date of Q3 2017
A specific date of September 5, 2017 has since been selected
Letter to SEC submitted June 2015

6. Background cont.
Letter from SEC Chair Mary Jo White received September 2015
Supporting industries effort to move to T+2
Requesting other impacted regulators and Self-Regulatory Organizations (SRO) such as DTCC, NYSE, and NASDAQ to “develop detailed schedules to consider the necessary rules amendments” and the “SROs finalize these schedules by October 31, 2015”
Requesting the Industry Steering Committee develop a “detailed implementation schedule including interim milestones and dependencies by December 18”

7. Key Work Streams The Industry is focused on three key work streams:
Legal and Regulatory Engagement
Development and Internal Testing
Industry Testing and Implementation

8. Legal and Regulatory Engagement
Regulatory certainty is key to the industry moving forward with T+2
Letter from SEC Chair White provided industry with a certain amount of regulatory certainty
Timeline proposed by the Industry Steering Committee:
Implementation Activity
2016
2017 Q1 Q2 Q3 Q4
SROs and Regulators notification of proposed rule changes
Comment period on proposed rule changes
Submission of proposed rules to the SEC for comment and approval
Release of final SRO and Regulator rules

9. Legal and Regulatory Engagement cont.
Regulators and SROs are at various stages of completion
MSRB published final rule changes
FINRA and NASDAQ published proposed rule changes
Industry Steering Committee meets regularly with regulators and SROs:
Provide regulators a status of the T+2 project
Monitor progress of the regulators and SROs
All regulators appear committed to making their required changes in support of T+2

10. Development and Internal Testing
An Implementation plan was a specific request contained in the SEC letters
Industry Steering Committee engaged Deloitte to help produce the industry implementation plan
Deloitte assembled a group of industry professionals across all impacted market segments
Conducted a number of industry workshops
The end result was the T+2 Industry Implementation Playbook published December, 2015

11. Development and Internal Testing cont.
T+2 Industry Implementation Playbook serves two key functions:
Satisfy the request contained in the SEC letter
Timelines, Milestones and Dependencies
Help the the industry with their development efforts
Playbook which is a tool for members to help prepare internally for move to T+2
This continues industry outreach

12. Development and Internal Testing - DTCC
DTCC, as a market participant, has its own changes to make to support the move to T+2
DTCC internal development includes changes at:
Omgeo
NSCC
DTC
Business requirements defined
External facing requirements document published in March 2016
Omgeo - Trade Affirmation
NSCC - Trade Capture and Trade Clearing
DTC – Asset servicing (Transfer Agents)

13. Development and Internal Testing - DTCC cont.
Functional design complete
Technical design underway
On-track to have build complete and ready for industry testing 1Q/2017
What is the status of your firm?

14. Industry Testing and Implementation
Critical to successful implementation of T+2
Assembled industry T+2 Testing group
Testing group identified three levels of T+2 testing:
Internal User Acceptance Testing (UAT)
Testing with customers and stakeholder (including Service Providers)
Testing with industry infrastructures
DTCC is a key provider of the industry infrastructure
Outside the scope of industry test

15. Industry Testing and Implementation cont.
The end result of the T+2 testing group meetings was the production of a high-level test approach document
The test approach document was released in February, 2016
Test structure
Testing time frames
Test environment – Including new DTCC test environment
DTCC to produce a more detailed test document in July, 2016

16. Next Steps DTCC Members: If you have not already done so:
Identify required changes (Use the implementation playbook where applicable)
Allocate required resources
Target completion of internal build by Q to participate in the industry testing
Review and update industry testing connectivity
Continue to monitor progress of the various regulator rule changes
Continue to engage with the various industry working groups

17. Next Steps cont. Industry:
Continue to engage with Regulators to advance rule changes
Continue industry outreach / education
Review DTCC detailed Requirements Document outlining all changes (Issued March 2016)
DTCC to publish detailed Test Plan Document (July 2016)
Industry Steering Committee to establish a “command center”
Industry to publish detailed implementation documents (TBD)
Prepare to move to T+2 on September 5, 2017

18. Dematerialization

19. What & Why
What
The move from physical certificates to electronic book keeping. Actual stock certificates are slowly being removed and retired from circulation in exchange for electronic recording. 
All shares newly issued or transferred into a registered stockholder account would be in book-entry form, or Direct Registration (DRS)
Stockholders receive a Direct Registration Account Statement as evidence of ownership
Why
SEC is moving the Industry to T2 on September 5, 2017
Thousands of certificates are reported lost annually, requiring additional fees/costs
Superstorm Sandy, World Trade Center Towers, other acts of nature

20. Benefits to Dematerialization
Issuers
Reduced costs related to printing, issuing and mailing certificates
Contribute to a successful industry move to T+2 settlement
Mitigate risk associated with certificates being used to conduct fraudulent transactions
Issuers that have dematerialized; Apple, Comcast, Delta Airlines, MetLife, Morgan Stanley, Visa, Walt Disney Company

21. Benefits to Dematerialization cont.
Shareholders
Eliminates the risk/cost of lost certificates
Currently must pay a processing fee and bond premium to replace their lost certificates
Recommended to insure packages containing certificates when sending certificates
Faster processing of transactions if certificates do not have to be printed
Easier position movements to broker (DRS Profile)
Reduced risk of failed trades due to compromised certificates
DTCC disincentive fee of $500 to request a certificate via a broker, this cost is likely to be passed to the stockholder

22. Benefits to Dematerialization cont.
Transfer Agent
Infrastructure needed for certificates
Vault
Security
Increased regulatory scrutiny and review
Managing the cost of certificate production and replacement
Costs are passed onto issuers
Until certificates are 100% eliminated, transfer agents will have to maintain fixed-costs infrastructure to continue to support certificate processing
Exchanges
Quicker settlement with move to T+2 settlement
Faster processing of transactions
To meet T+1 settlement, dematerialization will have to be mandatory

23. Other Considerations/Best Practice
Work closely - Between issuer / TA
Clear communication is critical for a smooth transition
Set realistic timelines
Shareholder concerns
Restricted Securities

24. Questions?