The Dematerialization of Securities

The Dematerialization of Securities

26 May 2022

DEMATERIALIZZAZIONE

SPA

BORSA ITALIANA

Today we discuss the Dematerialization of a company's securities. What exactly does it consist of? What are the benefits for the company and the investor? Let's find out together.

What is the dematerialization of securities?

The dematerialization of financial instruments consists of the transformation of a certificate that was previously paper/physical into an accounting entry within an electronic ledger, maintaining the same validity.

These instruments are represented by actual entries in the accounts of an authorized financial intermediary, for Italy this is Monte Titoli Spa-Euronext Securities Milano.

The regulations regarding dematerialization were introduced into the Italian legal system in 1998 by Legislative Decree 213.

The purpose of this process is to facilitate the transfer of securities as opposed to paper securities, plus delegating their custody and management to financial intermediaries.

The Benefits

What are the motivations that lead a company to use this instrument if there is no obligation to do so?

  • Management through Monte Titoli of corporate transactions such as dividend distribution, aucap, calling of meetings, mergers , etc
  • Communicating to the company's shareholders through Monte Titoli via the bank where they have their deposit account
  • Dematerializing securities for a joint stock company announcing its intention to list on the stock exchange lends greater credibility

On the other hand, what advantages does an investor access if the company that is the object of their investment has dematerialized securities?

  • The investment allows for the registration of each transfer of ownership without any notarial costs by old and new shareholders, this makes the purchase and sale smoother and less expensive
  • Once the transaction is concluded (whether between individuals or on a trading market, e.g., of the Italian Stock Exchange) the investor will not have to worry about physically handing over the securities, but it will be the authorized intermediary (Monte Titoli) that will make an accounting entry by which it will transfer them from the securities deposit account of the selling party to that of the buying party
  • The banks of the respective parties will also act as tax substitutesfor individuals

Who can choose dematerialization?

Voluntary dematerialization to date is possible for all SpAs, even if they are unlisted and not subject to regulatory requirements.

It is therefore also possible for a bidder on Mamacrowd, as long as it is a SpA, to opt for this mode.

With the exception of shares in LLCs (although news on this topic is expected soon), all financial instruments can be dematerialized. For example, trading on the markets of the Italian Stock Exchange of shares or bonds takes place exclusively in dematerialized form, without any "physical passage" of paper certificates. Consequently, a company that wants to list on the stock exchange will necessarily have to dematerialize its securities first.

The Actors in the Dematerialization Process

In Italy, the main actor is Euronext Securities Milan (Monte Titoli S.p.A.), which performs the functions of central depository of dematerialized financial instruments, under the supervision of the Bank of Italy and Consob. A SpA, after opening an issuer account, can decide whether to operate independently with the central depository or use a third-party company specializing in the field, which can assist it in the management and fulfillment of all related corporate activities.

The requirements for the investor

The only technical requirement for accessing a campaign with dematerialized securities is the possession of a securities deposit account, at any bank.

This is a medium through which the bank stores and manages the financial instruments owned by the client in question.

Opening a securities deposit account takes little time and can be done by anyone, even if you are a first-time investor. All that is required is the signing of an ad hoc contract and the association with a current account to which the returns and charges inherent in the securities held will be credited and/or debited. It is possible to open multiple securities deposit accounts, at various banks, and make use of them for any type of financial transaction on the stock market and for equity crowdfunding operations.

On Mamacrowd when is there a dematerialized scheme?

You can recognize a collection with dematerialization regime thanks to the label CDT (securities deposit account), present in the top bar in each campaign. In that case you will then need to have a Securities Deposit Account to invest. After investing what happens to the subscribed Securities? Issuance and transfer will be handled by the company in the campaign, then you will be able to see the subscribed Securities in your Securities Deposit Account, as well as within your Mamacrowd portfolio.

...Dematerialization of shares for SRLs?

There are ongoing discussions among industry participants that in the future SRLs may also dematerialize their corporate shares.

Both companies and their investors would benefit from this modality that facilitates the exchange of shares, avoiding bureaucratic steps and notary costs.

The dematerialization of securities would give a big boost to the world of unlisted, real economy and equity crowdfunding, opening the door to the secondary market for shares.

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