File No. S7-13-04; Concept Release: Securities and Transactions Settlement, 
Release No. 34-49405From: Klafter, Cary [cary.klafter@intel.com]
Sent: Monday, May 10, 2004 8:06 PM
To: rule-comments@sec.gov
Subject: File No. S7-13-04; Concept Release: Securities and Transactions 
Settlement, Release No. 34-49405 


Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Jonathan G. Katz, Secretary 

Via e-mail: rule-comments@sec.gov 

Re: Concept Release: Securities and Transactions Settlement
(Release No. 33-8398; 34-49405; IC-263846; File No. S7-13-04; 
RIN 3235-AJ19) 

Ladies and Gentlemen: 

The American Society of Corporate Secretaries, Inc. (ASCS) is a professional 
association founded in 1946, serving more than 4,000 corporate attorneys and 
other business executives who represent over 3,000 issuers.  Job responsibilities 
of our members include working with corporate boards of directors and senior 
management regarding corporate governance; assuring issuer compliance with 
securities regulations and listing requirements; and coordinating activities with 
stockholders, including proxy voting for the annual meeting of stockholders and 
negotiation of stockholder proposals.  The majority of ASCS members are attorneys. 
ASCS members have been actively involved with implementation and operation of the 
Direct Registration System (“DRS”), which has enabled many issuers to eliminate 
costly paperwork and offers shareholders the efficiencies of electronic registration 
while maintaining, if they choose, a direct relationship with the issuer.

We appreciate the opportunity to comment on the Concept Release and, in particular, 
Section IV thereof regarding the immobilization and dematerialization of securities 
certificates.   We are submitting this comment letter to register our support for 
the efforts by the Securities and Exchange Commission (the “Commission”) and other 
groups to reduce and seek to eliminate the use of physical securities certificates 
and to respond to some of the Commission’s enumerated requests for comments. We 
note in this regard that the Securities Industry Association (SIA) is in the midst 
of a project to encourage immobilization and dematerialization and plans to publish 
an Implementation Guide for the use of issuers, transfer agents and securities firms. 

It is clear from the point of view of corporate issuers that certificated securities 
are an obsolete concept in this era of computerization and multiple thousands, if 
not millions, of stockholders per issuer. Paper certificates routinely generate 
problems and expense far out of proportion to the number of shares or bonds they 
represent. We agree that some shareholders may be “attached to securities certificates”, 
but the public and economic benefits of immobilization and dematerialization far 
outweigh that extremely minor consideration.  Typical paper-related issues for 
issuers include expense of printing, delivery, safekeeping and the processing of 
transferred certificates; lost, stolen, destroyed and forged or altered certificates; 
requests for multiple certificates in small denominations; escheatment resulting from 
lost certificates; and problems related to dividend payments.  All costs of dealing 
with physical certificates can be expected to rise over time, particularly as they 
become exception-based items unable to take advantage of newer and more efficient 
processes. The Commission’s Release explains how the use of paper can create settlement 
failure and otherwise adversely affect the settlement process.  We note that many U.S. 
Government issuers, and the mutual fund industry, have largely succeeded in eliminating 
certificated securities from their operations. Elimination of certificates by fiat is 
not available for many commercial-industrial issuers, because relevant state law in some jurisdictions (including Delaware) may still require the availability of paper 
certificates for requesting stockholders. 

In response to your Question No. 1, both immobilization and dematerialization (as 
defined by the SIA, below) serve to deal with many of the problems and expense items 
related to certificated securities. We do favor dematerialization as an end-state goal 
since it will prevent a later proliferation of paper and the continuation of costly 
manual processes. To reach that goal, in response to your Question No. 3, issuers 
will need the support of several state legislatures (or Federal action pre-empting 
the state law) to rescind corporation code provisions that allow shareholders to 
receive paper certificates as a matter of right. We understand that the vast majority 
of states currently allow publicly traded companies to avoid the use of physical 
certificates, but those that require certificates upon shareholder request include 
Delaware.  It will be extremely helpful if the Commission actively engages with the 
states to support those changes or acts with pre-emptive authority in the matter. 

§  Immobilization is any circumstance where an investor does not receive a physical 
certificate upon the purchase of shares or is required to physically deliver a 
certificate upon the sale of shares. Evidence of an investor’s ownership will be 
maintained on the books and records of a broker/financial institution or corporate 
issuer. DRS and street-name ownership are both examples of book-entry ownership 
where securities are “in the system” and thus immobilized. Simply stated, it refers 
to taking certificates out of circulation at the time of any transaction.

§  Dematerialization is the processes of eliminating physical certificates as a 
record of security ownership, or where ownership of the security exists only as 
an accounting record.

With regard to your Questions concerning DRS, many of our members are DRS-eligible 
issuers, and we believe that on balance the system works quite well.  We believe 
that DRS should be encouraged because of the advantages it offers to issuers and 
investors.  For issuers, these benefits include elimination of the cost of printing 
stock certificates and improving services for registered shareholders.  For investors, 
the benefits of DRS include avoiding the risk that certificates will be misplaced 
or stolen, as well as the ability to enroll into shareholder plans without the risks 
or delays associated with mailing share certificates to the transfer agent.  In 
addition to dividend reinvestment plans and direct stock purchase plans, such plans 
include programs designed to enable shareholders to liquidate their shares as 
described in Section 3(a)(4)(B)(iv)(III) of the Securities Exchange Act of 1934, as 
amended.  In this connection, we would welcome processing rules specifically designed 
for book-entry transactions, as well as for dividend reinvestment and similar plans.  
We note that shareholders today see little practical difference between book-entry 
shares that are enrolled in a plan and book-entry shares that are not so enrolled, 
and we believe that shareholders should be able to easily and conveniently obtain the 
full array of shareholder services available to plan participants if they so choose.  
Therefore, a consistent set of processing rules would be beneficial.

We believe that another benefit of DRS is that it offers a powerful tool for 
shareholder communication with regard to the proxy process and otherwise.  The current 
system for shareholder communication, including the NOBO/OBO rules, does not work 
well and we expect that it will work even less well in the future. The increasing 
volume of shareholder proxy proposals, issuer equity plan proposals and the potential 
for a massive increase in director election contests will strain the system and 
highlight weaknesses in communication, vote audit trail and related matters. Numerous 
commentators on the Commission’s director nomination proposal have pointed out the 
problems with the current rules and structures for shareholder communication and the 
need for upgrading and modernization in ways that facilitate efficient and cost-
effective issuer-shareholder communications. Issuers are unable to communicate 
directly with OBOs, resulting in inefficiencies and delays; further, the tabulation 
of votes for beneficial holders may be undermined by securities lending practices 
of nominee holders, causing over-voting which results in disenfranchisement of some 
beneficial holders.  Expanded use of DRS will give issuers more transparency in the 
proxy process today; in the future DRS would hopefully be sufficiently scaleable 
that it could be used as a significant part of a revamped shareholder communication/
proxy system.  A robust, widely accepted book-entry system for registered holders 
would make registered ownership a more viable, attractive form of ownership for 
investors, enabling issuers to communicate directly with more of their shareholders 
and improving the accuracy of the proxy tabulation process. 

 Although DRS is gaining in acceptance, we understand that only ~750 issuers are 
 currently eligible for DRS, predominantly issuers that became DRS eligible in 
 conjunction with undergoing a corporate action. Nevertheless, the DRS system is  
 in place and we favor expansion of this program rather than its replacement with 
 some sort of new program. It is somewhat unclear if the CPSS/IOSCO Report is 
 advocating a substitute for DRS, but we presume that DRS can at a minimum serve 
 as the base for any expanded suite of tools supporting immobilization and 
 dematerialization.  

In response to your Question No. 8, we believe that a powerful way to expand DRS 
would be to implement listing requirements to require public companies to become 
DRS eligible.  When many more issuers become DRS eligible, book-entry ownership 
will be much more common and this would facilitate investor and broker interest 
and understanding of this alternative to physical certificates.  The Commission 
could adopt a rule that requires transfer agents for DRS-eligible issuers to issue 
shares in book-entry when share certificates are submitted for transfer, unless the 
shareholder specifically requests a certificate. Similarly, the Commission could 
adopt a rule requiring broker-dealers to deliver out shares of DRS-eligible issuers 
in certificated form only upon the investor’s specific request.  Additionally, the 
Commission might adopt a rule requiring broker-dealers and transfer agents to 
inform investors that they have the ability to hold securities in DRS rather than 
in physical form.  This disclosure could be triggered whenever a shareholder 
requests a physical certificate or acquires an initial position in the issue 
through a bank/broker account. Going further, the Commission could simply mandate 
the use of DRS whenever a physical certificate is submitted for transfer and it 
could be required that any un-certificated shares remain in that state; paper 
would be reduced slowly as it is submitted but no new paper would be generated.  

We do understand that the complete elimination of physical certificates at this 
time could be difficult with regard to particular types of holdings.  For example, 
in some jurisdictions restricted stock may require use of a legended physical 
certificate, and stock serving as collateral may have to be physically possessed 
to perfect a security interest.  At a broader level, some state corporation statutes, 
e.g., Delaware, still require that shareholders have the option to receive a 
certificate for their shares.  However, most states and state laws do allow for 
dematerialization, and they can serve as ample precedent for consideration in the 
jurisdictions which still require physical certificates in certain cases.  We do 
encourage the Commission to support efforts at the state level to amend state codes 
to allow issuers to opt out of the issuance of paper certificates if they choose 
to do so. 

In response to your Question no. 13, we do not believe it will require a major 
effort to “engender public confidence in certificate-less systems”.  Paper holdings 
are a residual, minority position; the vast majority of holdings of investors are 
currently represented as computer entries on a bank/broker monthly statement, not 
to mention the bank deposits and assets that exist to their owners as computer 
entries.  The SIA is currently preparing educational materials to encourage 
immobilization and dematerialization, and this and other initiatives can be 
employed to assist in avoiding needless investor concern about certificate-less 
systems. As noted above, the U.S. Government itself has largely converted to 
certificate-less systems without a loss of investor confidence. 

In conclusion, we believe that DRS is currently working well and that its 
expansion appears to be an efficient and effective way to reduce the number of 
share certificates.  The Commission can and should take a number of steps to 
encourage or mandate dematerialization by publicly-traded companies.  

Please call the undersigned should you have questions about the comments 
provided in this letter. 

                        Very truly yours, 
                        Cary Klafter 
                        Chair, Public Company Affairs Committee, 
                        American Society of Corporate Secretaries


_________________ 
Cary Klafter 
Intel Corporation 
408.765.1215 
408.653.8050 (fax) 
408.219.6959 (cell) 
cary.klafter@intel.com