Paper Share Certificates: What Happens Now?
Since the beginning of the 16th Century, paper share certificates have been at the forefront of investing. The Dutch East India Company (VOC), established in 1602 was the first company to issue shares to investors in this way. This was how they raised capital to fund voyages along their trading routes. It quickly became one of the biggest companies in the world and having sparked such interest with investors, the company was responsible for the creation of the Amsterdam Stock Exchange. As similar companies began to see the advantage of issuing shares this way, it wasn’t long until the French and English companies began doing the same, most notably The British East India Company. These paper certificates would be nothing like the ones we have today. They would have been hand-written and decorative works of art. Today they would be considered as collectors’ items, fetching high sums at auction. In 2010, a history student came across a Dutch East India Company founders share certificate in the West Frisian Archives. Dating back to 1606, it was said the cert could fetch up to €600,000 at auction.
Fast forward 417 years and investing in companies is extremely different. We’ve had the industrial revolution, the invention of electricity, numerous advances in technology and now instant information at our fingertips. Investing in companies has transformed from purchasing share certificates at an exchange to as easy as pressing a button on your mobile phone. The technology of our time has made life much easier and the speed at which it can be done has never been quicker. The 1980’s saw the Depository Trust Company, in the US, create the Direct Registration System (DRS). This allows investors the option to hold their assets in book entry form directly with the issuer and electronically with their registrar (transfer agent). An option which has seen the death of the physical share certificate in the US. In the US today, paper share certificates are rarely ever used unless specifically requested, creating a completely electronic experience for the investor. A more convenient and efficient system, that’s safer for the investor and also compliant with the regulatory requirements of the US. As the US leads, it is the norm that Europe will follow.
The Central Securities Depository Regulation was introduced across Europe in 2014. The CSDR is the regulation relating to securities settlement and central securities depositaries (CSDs). This regulation covers all CSDs based in the European Union. As per the Central Bank of Ireland’s website, the main objective is to ‘increase the safety and efficiency of securities settlement and the settlement infrastructures in the European Union’. An important component of this is for all paper share certificates to be held electronically. We have already taken many steps towards this and since the beginning of 2023, all new shares bought have been held electronically or in dematerialised format. Furthermore, by January 1st, 2025, all paper share certificates will automatically be transferred into electronic format (dematerialised). Like the US, this is a move in the right direction and is great for the investor. A complete electronic experience that is safer and more efficient. It also reduces admin costs for the registrar and stockbroker. Disposing of shares will be much easier and quicker, not having to wait for shares to be physically on the account will be a blessing every stockbroker will love.
This process will not affect your holding in any way. Each company’s registrar will contact you, their investors, to explain the process but it may be some time into 2024 before that happens. Each investor has an investor code that is printed on the paper share certificates, this may be their new identification number on the new electronic register. The cost of this will not be passed onto the investors either, which is a sigh of relief for those with smaller holdings. For those with paper certificates, it might be a perfect time to get ahead of the crowd and have this process completed sooner rather than later.