New dematerialisation law immobilises assets
of Jamaica is in the process of passing the Government Securities Dematerialisation Act 2010, to provide for the conversion of physical certificates into a paperless or electronic format, and the immobilisation of Government of Jamaica (GOJ) securities.
Immobilisation has been defined by the bill as the process whereby physical certificates relating to GOJ securities have been deposited with and are held by a depository and the owner does not receive a physical certificate upon purchase of the security.
It, therefore, means that ownership of GOJ securities will no longer be evidenced by physical certificates but will instead be recorded in a depository and held electronically - as now happens with stock units.
The bill will make it compulsory to convert existing GOJ debt stock, issued in paper format, to dematerialised securities. New securities issued by the GOJ, after the date of the passage of the act, will be issued in an electronic format.
The bill states that the ownership of any GOJ security shall be acquired, evidenced and transferred electronically, and without a written instrument and evidence of such ownership will, on the face of it, be from records maintained in the register by the registrar, identified by the bill as the Bank of Jamaica (BOJ).
Role of the registrar
Owners of dematerialised securities will have accounts at the depository, which will be credited with the value of the securities.
Investors can, therefore, expect to receive periodic notification as to their balances kept at the depository.
The bill appoints BOJ as registrar of GOJ securities but also provides for the future designation of a licensed central securities agency in that role.
The registrar may, by notice published on at least two occasions in the Gazette and in a daily newspaper, direct all owners of GOJ securities to deliver their securities to the registrar for the purpose of the securities' conversion into dematerialised GOJ securities.
The notice will also indicate the time period for the conversion to take place.
Thereafter, GOJ securities not in a dematerialised form may only be used by their owners for the purpose of exercising their right to conversion to dematerialised securities.
It, therefore, means that after the expiration of the period, securities owners will be not be able to trade, borrow, pledge or hypothecate such securities.
Eliminating the paperwork
Under the dematerialisation process, securities in a physical form will be destroyed and corresponding balances in an electronic format maintained for respective owners of securities.
Dematerialisation aims to eliminate the paperwork involved in transfer of securities as the transferor would no longer need to complete a transfer form then take it to the registrar, the Ministry of Finance, for the issue of a new certificate in the name of the transferee. Transfers will now be instantaneous.
Dematerialisation will also eliminate the delay involved in receiving new certificates as securities bought in the primary and secondary market can take as long as three to six months before delivery from the registrar.
Advantages of dematerialisation of securities include reduction of printing costs of the GOJ, storage of volumes of paper by the GOJ and lower administrative costs that are associated with physical certificate delivery.
Postal charges incurred when mailing printed securities to investors and the risk associated with loss or fraudulent interception of securities in the post are also eliminated.
Keeping securities in physical form created additional problems. Investors complained of loss, theft and mutilation of securities.
The process of replacing securities is elaborate and involves the payment of a fee to have a replacement certificate issued and the issuing an indemnity by the investor to the registrar.
Harmonisation of the Government Securities Dematerialisation Act with legislation that restricts securities issued by the GOJ to a physical form will have to take place.
Laws requiring amendment include the Local Registered Stock Act, Land Bonds Act and the Debenture (Local) Act, all of which restrict securities issued to paper certificates.
To this end, the the bill makes provision for the Minister to make amendment to such legislation to ensure consistency.
Michelle J. Parker is an attorney with the law firm, DunnCox in Kingston.