Sent: Monday, March 22, 2004 2:36 AM Subject: S7-13-04 Dear Jonathan G. Katz, My name is Medha Parthasarathy from Mumbai, India. I am doing a study about the depository implementation in various countries. I am doing an in-depth study about Australia, USA and India. I came across this particular questionnaire for feedback in sec.gov. Hope my feed back would help in evolving a better depository services at shortest time cycle Regards MEDHA PARTHASARATHY. ACA 1304 E Runwal Centre, Govandi Station Road, Govandi Mumbai India Pin 400 088. Phone no : 00 91 22 55967315 Mobile no : 0 91 98204 09283 ============================================================================================= I thought I will forward my views which are basically a reflection of the implementation experience in India Depository Scenario. 1. Should securities be completely immobilized or dematerialized in the U.S.? If so, which would better serve the market - complete immobilization or dematerialization? Why? ====================Views Start ========================================================= I think you must go for dematerialization for shares which comes to the depository with an option for holding of physical shares by the investor on their choice. When an investor choose to demat the shares (IPO or other wise), share to be transferred to the legal ownership of the depository and a beneficial ownership credit to be given in the books of the depository in favour of the investor. The only control which has to be maintained in the books of the registrar is the following: Total Number of instruments issued: A Instruments which are held in physical form - b Instruments which are held in the name of the depository - c Where a = b + c ===================Views end============================================================= 2. What are the costs and benefits of complete immobilization or dematerialization? ====================Views Start ========================================================= It removes the paper from the whole system and the cost will come down drastically. ===================Views end============================================================= 3. Are there operational, legal, or regulatory impediments to immobilization or dematerialization? ====================Views Start ========================================================= I would not know much about the American regulation to give a comment. ===================Views end============================================================= 4. What advantages might certificates have over securities held in book-entry- only form (i.e., proof of ownership in the event of a loss of electronic records of ownership)? What regulatory initiatives should be considered to address these advantages if the markets were to move away from certificates? ====================Views Start ========================================================= Effective bcp /drp measures. ===================Views end============================================================= 5. Should the existence of a viable, widely available direct registration system that preserves the benefits of holding securities in the form of physical certificates be a prerequisite to complete immobilization or dematerialization? ====================Views Start ========================================================= No comments ===================Views end============================================================= 6. What should be done to increase the availability and use of DRS or to otherwise improve DRS? For example, should the Commission adopt operational or processing rules specifically for processing book-entry transactions (i.e., DRS and dividend reinvestment and stock purchase plans), including, but not limited to, timeframes for processing these transactions? ====================Views Start ========================================================= Regulatory to give incentives to the investor to hold the shares in the book entry form. In the Indian experiment, government waived the transfer charges of 0.5% on the value of shares, in case the transfer is done by book entry. ===================Views end============================================================= 7. What are the back office costs at broker-dealers to process securities certificates? What are the costs at transfer agents to process securities certificates? How do these costs compare to the costs of processing book-entry securities? ====================Views Start ========================================================= The cost of operations comes down drastically at the brokers and transfer agents. In case of book entry transfer, the transfer will be affected by the depository and registrar is informed of the transfer once in a week. I have heard from the Indian experience the cost of the fund managers has fallen substantially after the implementation of the depository (www.nsdl.co.in ) ===================Views end============================================================= 8. What should be done to encourage more companies to issue their securities in a completely immobilized or dematerialized format? Should publicly traded companies be required to do so? ====================Views Start ========================================================= Yes, I think all public traded companies when has give the investor the option to hold the shares in the demat form. It must be mandated on the issuers. This has worked well in India (www.sebi.com ) ===================Views end============================================================= 9. What can broker-dealers do to facilitate complete immobilization or dematerialization on both the retail and institutional customer levels? Are registered representatives sufficiently educated about DRS and do they communicate to investors available options to holding a certificate? ====================Views Start ========================================================= I would suggest the depository should go retail by conducting investor seminars. And also the depository must provide all information on benefits of the book entry in their sites. Encourage the participants in the above. This has worked well in India ===================Views end============================================================= 10. What can transfer agents do to facilitate complete immobilization or dematerialization on both the issuer and investor level? ====================Views Start ========================================================= The cooperation of the transfer agent is important for the dematerialization process and they must have resources for early demat when investor submits for dematerialization. ===================Views end============================================================= 11. What incentives or disincentives can be employed to discourage shareholders from requesting certificates? Will investors be less inclined to request a certificate if they were required to pay more to obtain, transfer, and trade certificated securities than book-entry securities? Should investors who choose to hold certificates bear a greater amount of the overall costs associated with producing and processing those certificates? ====================Views Start ========================================================= The retail investor is sensitive to cost. The regulator should provide some waiver of statutory charges to the investors who hold the shares in demat form. In Indian experience, the transfer charge of 0.5% is waived by the government from the date of implementation till now. The depository system should provide for the book entry pledge of shares : This will help the investor to take money from the banks incase of any short term requirement. In the Indian scenario, the shares are in the account of the investor with a right to call to the receipent of pledge i.e the banks. So the investor get the corporate actions and the bank has a lien over the share for the loan given Securities lending and borrowing of shares through depository where depository tracks information for the investor. This will give an opportunity for the investor to make money out by giving the legal ownership to another person but holding back the beneficial ownership. ===================Views end============================================================= 12. Are any rules or regulations needed to enhance the safety of book-entry systems operated by transfer agents or broker-dealers? ====================Views Start ========================================================= All participants should be connected with the depository on real-time basis. The records showing account balances of participants and depository must be reconciled at the end of the day. ===================Views end============================================================= 13. What can be done to engender public confidence in certificate-less systems? ====================Views Start ========================================================= A good disaster recovery plans should give confidence to the users to come to the demat forms ===================Views end=============================================================