Know the Facts About Direct Registered Shares

Direct Registered Shares

Direct Registered Shares

As an individual investor, there are several ways in which you can hold securities. Many investors hold them in “street name.” This means that the shares are registered with the issuer under the name of an intermediary, typically your brokerage firm, that maintains electronic, “book-entry” records showing you as the real or “beneficial” owner.

Alternatively, you might be able to choose to have the actual physical stock or bond certificate sent to you for the shares you’ve purchased. In this case, the securities are registered in your name on the issuer’s books, but you’re responsible for safeguarding the physical certificate. However, not all securities are available in physical form.

A third way to hold securities is through direct registration. This means that the securities are registered directly in your name on the issuer’s books and are held for you in book-entry form by either the issuer or its transfer agent. The transfer agent—hired by the issuer to maintain shareowner records—must be eligible and admitted to the Direct Registration System (DRS) by the Depository Trust Company (DTC).

Understanding Direct Registration

If an issuer offers direct registration for its securities, you can choose to be registered directly on the books of the issuer (maintained by its transfer agent) even if you bought your securities through a broker-dealer.

Direct registration allows you to have your securities registered in your name—rather than in the name of a brokerage firm—without the need for a physical certificate, which could be lost or stolen, to serve as evidence of your ownership. While you won’t receive a certificate, you will receive transaction advice detailing any transactions, as well as periodic account statements, dividends, annual reports, proxies and other communications directly from the issuer or its transfer agent.

Issuers or transfer agents typically don’t charge fees for direct registration. However, you might be charged for transferring securities from one form of ownership to another. Always ask your broker-dealer and the issuer about potential costs if you’re considering transferring securities to a different form of ownership, such as from street name to direct registration.

Here are some factors to keep in mind if you’re considering buying or selling direct registered securities:

Purchases:

  • Purchases made through the issuer (or its transfer agent) of securities you intend to hold in direct registration are usually executed under the guidelines of the issuer’s stock purchase plan. You’ll need to instruct the transfer agent to move the securities to the DRS.
  • Issuers’ transfer agents typically don’t maintain cash accounts for investors. When you make a purchase, you’ll need to send the transfer agent the necessary funds.
  • Purchases through issuer plans are typically processed on a “batch processing” basis, so there may be a time lag before the order is executed. In rapidly changing markets, this could result in receiving a different price than you intended.

Sales:

  • You might be able to place sales orders through the issuer (or its transfer agent) if it has a sales facility that accommodates those orders. The issuer (or its transfer agent) will then use a broker-dealer to execute those orders. Contact the issuer or its transfer agent to determine the order types available.
  • To sell direct registered securities through your broker-dealer, ask your firm to electronically “pull” your securities from DRS to the book-entry records of the broker-dealer and then sell the securities.

It’s important to note that, depending on the type of securities and where you purchase them, you might or might not have all these choices for holding your securities. Learn more from the SEC about the different ways in which you can hold securities.

FINRA is dedicated to investor protection and market integrity. It regulates one critical part of the securities industry – brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org.

Photo Credit: @istockphoto.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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