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Insights from the NAST Symposium, Part 3

Posted By By Christa DeOliveira and Michael Unger, Thursday, August 8, 2019

The National Association of State Treasurers’ (NAST) Annual Treasury Management Training Symposium held during May 2019 in Providence, Rhode Island, was engaging and enlightening. The National Association of Unclaimed Property Administrators (NAUPA) is affiliated with NAST and led the well-attended unclaimed property track of educational workshops and sessions. This blog post is part three in a series about the topics discussed in the symposium sessions. Read part one hereRead part two here.

 

Securities

Securities have a unique set of challenges, including sometimes complex transfer steps; various corporate actions, such as dividends being declared and stock splits; and fluctuating values. During the the conference session about securities, the demands of securities maintenance were a central topic. 

 

Speakers discussed the pros and cons of immediately liquidating securities. Pros include: 

  • Requires less portfolio maintenance, including tracking and addressing corporate actions/dividends. 
  • No need to reregister shares, eliminating the associated costs and any confusion with claimants.
  • No perception of market play, if schedule is set up correctly with custodian, as it removes state staff from the liquidation process.
  • Lower custodial costs. 

Cons include: 

  • Claimant complaints regarding liquidated shares.
  • Fluctuating security prices.
  • Holder needs to make holder claims, such as needing to claim back property if there was a reporting error.

 

Speakers stressed that, even when immediate or early liquidation is pursued, states will still require a securities staff. There remains a need to publish shares on the website or liquidate before properties go on website, and conduct outreach to owners with shares – all under stringent policies and procedures. The session also included a discussion of holders liquidating securities before reporting. Because SEC regulations prohibit holders from liquidating securities in the name of the owner, this is a controversial topic for holders. 

 

While a very small portion of securities, worthless securities come with unique challenges, which were addressed during the session. Not all states accept worthless securities, but some do. Some states sell their worthless securities to Raymond James for $0.01 per position, and after one year any that have not returned to value are written off. At the time of the conference, 31 states engage in this service.

 

Finally, this session discussed that not all states update their owner/property records to reflect corporate actions. Rather, some states wait until there is a claim and then pay claims based off the original reported shares and any effects of corporate actions according to the state’s custodian’s records. 

 

Cryptocurrency

Like the 2018 symposium, there was considerable interest in cryptocurrencies at this year’s event. A session was dedicated to education on blockchain as a decentralized, digital ledger and blockchain transactions. There were comparisons made between longstanding markets and exchanges and crypto exchanges, citing both similarities and the differences. Similarly, there were parallels drawn to reporting, receiving and maintaining stock and how cryptocurrency could work. There was also some discussion of who are holders and not holders in the crypto context. 

 

There are distinct differences with cryptocurrency when compared to traditional markets. One such difference is that, in traditional markets, different entities fulfill the roles of broker, exchange, clearing house and custodian. Whereas, with cryptocurrency one company can fulfill all of these roles. Also, there is not a single DTCC number or single receiving account to transfer various currencies for custody and subsequent maintenance. Therefore, a state’s delivery instructions could be rather complicated. 

 

To transfer, holders need a receiving address, which can be an alphanumeric string or a QR code representing the string. Each currency has its own specific address format, which are different lengths. For example, a Bitcoin address is 42 characters and a Litecoin address is 34 characters. Additionally, while state unclaimed property systems support decimal places for shares, cryptocurrencies need to have more decimal places to properly report and remit.

 

There remain many unanswered questions or unresolved processes related to this property type. For example, in the current NAUPA reporting format, there are not fields able to accept the necessary information for reporting. What if property was received from an unknown party and there is not an ability to reconcile it, or duplicate remittances occurred? How could this be identified? Would property be returned? 

 

Other possible hurdles encompass whether states or NAUPA should endorse specific exchanges. What should states do to restore an owner’s property? For example, if a holder had to swap currencies to be able to report it to a state, does the state need to switch it back to the original to satisfy the claim? How would states handle safe deposit box contents that include a paper or hardware wallet? How would this be safeguarded? Would it be converted to cash or kept in its original state? How would states detect and thwart fraudulent claims?

 

No exchange deals with all of the more than 2,500 different cryptocurrencies. How would states handle reporting and remitting of any cryptocurrencies that a state does not or cannot hold? Should states have holders convert to a main currency before remitting or perhaps convert to U.S. dollars? States could have as many wallets as needed to cover all currencies, but would they pursue this? States could even have holders not report and remit this property or only over a certain value threshold? 

 

The educational workshops and sessions at the unclaimed property track of the recent NAST Symposium covered important insights on securities and cryptocurrency topics. While the topics covered may not directly or indirectly impact all property type holders, it is worthwhile to remain aware of NAUPA developments. It is also important to be informed of opportunities to work together with states, where our expertise and needs are aligned, and we can share our respective unique expertise and insights, and related unclaimed property challenges or issues.  

 

More information on this symposium will be available in a future blog post.

 

Christa DeOliveira is chief compliance officer with Linking Assets Inc. Michael Unger is a senior manager with Crowe LLP’s unclaimed property practice. 

Tags:  cryptocurrency  NAST  NAUPA  securities  Unclaimed Property 

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