Deposit/Withdrawal at Custodian (DWAC) is a vital service in the world of financial securities that operates under the auspices of the Depository Trust Company (DTC). The DWAC system simplifies the process of transferring shares electronically, making it an essential component in modern trading activities, particularly for broker/dealers and institutional investors.

What is DWAC?

DWAC is an electronic method for the deposit and withdrawal of new shares or paper share certificates to and from the DTC. It utilizes the Fast Automated Securities Transfer (FAST) program to facilitate the efficient handling of share transfers. Unlike traditional methods that involve physical movement of certificates, DWAC allows for an immediate and secure transfer of securities without the concern of loss or damage to physical certificates.

Key Features of DWAC

  1. Efficiency: Transfers happen electronically, which eliminates the time required for physical delivery of share certificates, leading to quicker settlement times.

  2. Cost Savings: By bypassing the need for printing and mailing physical certificates, DWAC reduces costs associated with the transfer of shares.

  3. Low Risk: The electronic nature of the service mitigates risks like loss, theft, or damage that can occur with physical certificates.

Key Takeaways:

Differences Between DWAC and Direct Registry System (DRS)

While both DWAC and the Direct Registry System (DRS) facilitate the transfer of shares, they do so in distinct ways.

Example Use Cases:

How DWAC Works

The Process

  1. Initiating a Transfer: The originating broker must be a DTC participant and the securities involved must be eligible for transfer.
  2. Execution of the Transfer: Brokers request the transfer of shares through the DWAC system, which allows seamless communication and transaction completion between the DTC and transfer agents.
  3. Account Updates: Upon successful transfer, the investor’s brokerage account reflects the newly held shares.

Requirements for DWAC

To initiate a DWAC transaction: - Shares must be free trading or eligible for restriction removal. - The broker must be a DTC participant. - The issuer of the shares must be DWAC-eligible.

The Role of the DTC

The DTC plays a significant role in facilitating trades and maintaining record-keeping for securities. The company processes about 1.4 million transactions daily with a total value of around $600 billion. The DTC ensures that both buyers and sellers can transact efficiently, thereby supporting the overall economy.

The FAST Program

FAST (Fast Automated Securities Transfer) is essential to the DWAC system, allowing for electronic transfers without the movement of physical certificates. Established in 1975, the FAST program works by having transfer agents act as custodians for the DTC. This program is instrumental in lowering costs related to printing and shipping share certificates.

Key Benefits of FAST:

Requesting Physical Certificates

Although DWAC is primarily an electronic system, investors still have the option to request physical stock certificates. To do so: - Shareholders must contact their brokers to initiate the request and may need to provide a Medallion Signature Guarantee for authentication. - If desired, physical certificates can be deposited back into brokerage accounts through DWAC by following a defined process involving the submission of stock certificates and a DWAC deposit form.

Conclusion

Deposit/Withdrawal at Custodian (DWAC) is a revolutionary service that enhances the efficiency of securities trading. It leverages technology to provide a seamless, risk-averse, and cost-effective solution for the transfer of shares. With the combination of DTC's infrastructure and the FAST program, DWAC not only streamlines transactions but also plays a vital role in promoting the dematerialization of physical securities, leading to a more efficient financial market.

For anyone involved in securities trading, understanding the mechanisms and advantages of DWAC is essential for effectively managing investments in today’s fast-paced financial environment.