Securities Industry:

SEC Leadership Needed to Further Automate Securities Transfers

IMTEC-92-4: Published: Dec 11, 1991. Publicly Released: Dec 11, 1991.

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GAO provided information on the status of U.S. efforts to reduce physical transfers of securities certificates by using computer technology to transfer ownership, focusing on: (1) actions taken by other countries to use automation to reduce physical transfers or eliminate the use of certificates; and (2) benefits attained and obstacles overcome in other countries by automating securities transfers.

GAO found that: (1) risks and inefficiencies associated with using certificates will remain until U.S. securities markets reduce their reliance on physical certificates; (2) the Securities and Exchange Commission (SEC) and the securities industry have not reached a consensus on automating securities transfers; (3) a primary obstacle to automating transfers is the potentially adverse effect such a change would have on retail investors who request and receive certificates in settling their transactions; (4) legal concerns also need to be resolved prior to eliminating physical certificates; (5) foreign markets of different sizes have overcome similar obstacles to automating securities transfers by dematerializing securities certificates; (6) foreign officials credited automating securities transfers with shorter settlement time and reduced risk, lower cost greater account accuracy and security, and increased processing capacity; and (7) in action by the U.S. securities markets and regulators to reduce settlement time and risk could hamper the strength of the U.S. market in the future as foreign markets offer more efficient services to international investors.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: SEC does not believe that having it set an implementation timetable would be prudent given the progress made in this area. SEC is relying on a securities industry task force to address the issues and develop concrete plans for making settlement reforms. SEC intends to have its Market Transactions Advisory Committee address the state laws impeding further automation of securities transfers.

    Recommendation: To further strengthen the efficiency and safety of the U.S. financial market settlement processes, the Chairman, SEC, should take action to decrease market reliance on physical transfers of securities. Such action should include setting a timetable to: (1) focus U.S. Working Committee efforts on developing and implementing a strategy for further automating securities transfers; (2) address committee concerns associated with retail investors; and (3) resolve concerns about legal obstacles that currently impair the automation of securities transfers.

    Agency Affected: United States Securities and Exchange Commission

 

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