The SEC’s Office of Investor Education & Advocacy & the Financial Industry Regulatory Authority (FINRA) are issuing this Investor Bulletin to provide information on the ways you might be able to hold your securities.
As an individual investor who buys or owns securities, you typically have several ways in which you can hold your securities. Options include holding in: “street name” book-entry form through an intermediary, such as your broker-dealer, or “registered ownership” form in your own name (also sometimes referred to as “record ownership”). Your securities held in registered ownership form can be represented by a physical certificate or can be in book-entry form at the company (also called the issuer) or its transfer agent (which is often referred to as “direct registration.”) In general, the term “book-entry” simply means that you do not receive a physical representation of ownership, such as a paper security certificate.
This bulletin explains these choices & provides considerations to help make your decision on how to hold your securities.
It is important to note, depending on the type of security & where you purchase it, you might or might not have all these choices for holding your securities.For example, not all issuers offer direct registration, some issuers no longer issue physical certificates, & not all brokerage firms accept delivery of physical certificates. Find out from your brokerage firm or the issuer or its transfer agent what options are available.
Street Name Registration
Many investors today hold securities in street name with a broker-dealer. With street name registration, the securities you purchase are registered on the issuer’s books in the name of an intermediary (such as your broker-dealer, a clearing agency, or a nominee affiliated with the broker-dealer or clearing agency), but your broker-dealer will maintain records showing you as the real or “beneficial” owner. Many brokerage firms will put your securities into street name unless you give them specific instructions that you want to hold your securities in your own name in registered owner form.
In many cases where securities are held by the investor in street name, the actual registered owner on the issuer’s books will be “Cede & Co.,” an entity that is affiliated with The Depository Trust Company (“DTC”) & that is often referred to as “DTC’s nominee.” DTC is a clearing agency registered with the SEC & is the main central securities depository in the U.S. Historically, most securities registered in the name of Cede & Co. were represented by “jumbo certificates” held in a vault at DTC. Today, this continues to be the case with respect to some issuers, but, with respect to many issuers, the securities registered in the name of Cede & Co. are held in book-entry form through direct registration at the transfer agent.
When you hold securities in street name through a broker-dealer, your broker-dealer will send you, at least quarterly, an account statement that lists all your securities held by the broker-dealer. Your broker-dealer will also credit your account with any associated dividend & interest payments & will provide you with consolidated tax information. Your broker-dealer will also ensure you are sent issuer communications, such as annual reports (except in certain circumstances where the issuer might send the annual report directly to you) & proxy materials related to stockholder meetings.
Considerations for holding securities in street name include:
- Your broker-dealer is responsible for maintaining the records of your ownership interest in the security, & you don’t have to worry about your securities certificates being lost or stolen.
- Because your securities are already held with your broker-dealer, you might have access to additional benefits & features. For instance, you might be able to place limit orders directing your broker-dealer to sell the security at a specific price. You might also be allowed to set up a margin account, allowing you to borrow funds that are collateralized by the securities you hold in street name with your broker-dealer.
- You should always make sure you understand the broker-dealer’s fees, including securities transfer fees & physical certificate request fees, before opening a brokerage account or making a specific transaction involving the broker-dealer.
- You might experience a slight delay in receiving your dividend disbursements & interest payments from your broker-dealer. For example, some broker-dealers only pass along these payments to investors on a weekly, bi-weekly, or monthly basis.
- Since your name is not on the books of the issuer, the issuer typically will not mail important corporate communications directly to you, but instead requests the broker-dealer to forward the information to you.
When you buy a security, whether through your broker-dealer or from the issuer itself, you might have the option to have the actual physical stock or bond certificate sent to you. The security is registered in your name on the issuer’s books, & you receive a paper certificate representing your ownership of the security. With this option, you might be assessed a fee for the added expense of issuing a paper certificate. It is important to safeguard physical certificates until you sell or transfer your securities; if your physical certificates are lost, stolen, or destroyed, you might experience difficulties in selling or otherwise transferring your securities &, if you seek to replace them, you typically will need to undertake administrative steps required by the issuer or its transfer agent & will incur associated expenses. Your broker-dealer — or the issuer or its transfer agent — will generally charge a fee to replace a lost or stolen stock certificate. For more information on safeguarding your securities, please read the SEC’s “Fast Answer” on Lost or Stolen Stock Certificates.
Considerations for holding a physical certificate for a security include:
- Entitlement to a physical securities certificate is a matter of state, not federal, law. This means that you might not be able to receive a physical certificate for your holding if the issuer has eliminated the right for investors to receive a physical certificate where permitted under state law & the governing documents of the issuer.
- Not every broker-dealer will accept delivery of physical certificates, potentially limiting your broker-dealer options. Additionally, if a broker-dealer does accept delivery, you might be assessed a processing fee.
- When you want to sell your stock, you will need to send the certificate to your broker-dealer or the issuer’s transfer agent to execute the sale. This might make it harder for you to sell quickly. In a volatile market, delayed execution could result in an unexpected price differential.
- The issuer knows how to reach you & the issuer or its transfer agent will send all issuer reports & other information to you directly, based on the contact information you provided. If you move, you are responsible for contacting the issuer or its transfer agent with your change of address so that you do not miss any important mailings, including dividend checks.
- If cash dividends are issued for a security where you physically hold a certificate, the issuer or its transfer agent will send a check for the dividend payment directly to you or directly deposit it in your bank account, depending on your instructions.
- You are responsible for safeguarding your physical certificate. If you lose your certificate, you might be charged fees if you request to replace it. Replacement fees for a lost certificate typically include processing fees & purchasing of a surety bond to protect the issuer from losses it might incur from the lost certificate should it resurface & be fraudulently presented at a later date.
- If you use a margin account at a broker-dealer & borrow funds from the broker-dealer, the broker-dealer might not accept physical securities certificates as collateral for the margin loan. Additionally, a broker-dealer will not be able to borrow your securities you own in certificate form to fulfill another customer’s short sale request.
To hold a security in direct registration means the security is registered in your name on the issuer’s books & is held for you in book-entry form by a transfer agent to the issuer that has been admitted as Direct Registration System (“DRS”) eligible by DTC.
Holding in such direct registration form (also commonly referred to as DRS form) allows investors to transfer securities to & from the transfer agent & a broker-dealer. 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) regardless of whether you bought your securities through a broker-dealer. Direct registration allows you to have your security registered in your name on the books of the issuer without the need for a physical certificate to serve as evidence of your ownership. While you will not receive a certificate, you will receive a transaction advice in connection with any transactions, as well as periodic account statements, dividends, annual reports, proxy materials related to stockholder meetings, & other entitlements or communications directly from the issuer or its transfer agent.
Considerations for holding securities through direct registration include:
- Since you are registered on the books of the issuer as the shareholder, you will receive annual & other reports, dividends, proxy materials, & other entitlements or communications directly from the issuer or its transfer agent.
- You do not have to worry about safekeeping or losing physical certificates or having them stolen.
- You might be able to place sales orders, including market order sales & limit order sales, through the issuer (or its transfer agent), if it has a sales facility that accommodates such types of orders. The issuer (or its transfer agent) will use a broker-dealer to execute the orders. You should contact the issuer or its transfer agent to determine the order types available.
- If you want to sell your securities through your broker-dealer, you can provide an instruction to your broker-dealer to electronically “pull” your securities from DRS on the books of the issuer at the transfer agent to the book-entry records of the broker-dealer & then sell your securities. As an alternative, you can instruct the issuer’s transfer agent to “push” the securities from DRS at the transfer agent to street name at the broker-dealer. (This method is used less commonly. It might require the investor to obtain the broker-dealer’s DTC participant number & provide it to the transfer agent & for the investor to provide a medallion signature guarantee to the transfer agent.)
- You should always ask your broker-dealer & the issuer (or its transfer agent) about fees that might be charged before transferring securities into or out of DRS.
- Purchases made through the issuer (or its transfer agent) of securities you intend to hold in DRS are usually executed under the guidelines of an issuer’s stock purchase plan, which uses a broker-dealer to execute the orders. Thus, to hold in DRS once the securities are acquired, you would need to instruct the transfer agent to move the securities from the issuer plan to DRS.
- Issuers’ transfer agents typically do not maintain cash accounts for investors in the way that broker-dealers do. Thus, when you make a purchase, you will need to send the transfer agent the funds to make the purchase.
- Purchases through issuer plans are typically processed on a “batch processing” basis, which might mean there is a time lag before the order is executed. The precise timing varies depending on the issuer & transfer agent involved & whether the order is sent electronically or on paper. For instance, when a purchase order is received electronically, some issuers or transfer agents might process the batch in under 30 minutes. When the purchase order is sent on paper, however, the batch cycle might be longer, possibly extending into the next business day. In rapidly changing markets, this could result in receiving a different price than you initially intended.
It is your decision how to hold your securities. Carefully review each of the alternative forms of security registration & consult with an investment professional to determine which form is best for you & your needs.
Frequently Asked Questions
Q: What is the Direct Registration System?
A: When an investor holds securities in the Direct Registration System (or DRS), the securities are registered in the investor’s own name on the books of the issuer, which is maintained by the transfer agent. The investor does not receive a physical certificate representing the security. An investor can instruct his or her broker-dealer or the issuer (through its transfer agent) to electronically move his or her security position back & forth between DRS at the transfer agent & book-entry street name at the investor’s broker-dealer. If an investor wants to move securities in street name at a broker-dealer to DRS at the transfer agent, the investor does not need a previously-established account at the transfer agent in order to do this.
Investors should understand that, when they change how they hold their securities, the securities do not exist in two places at the same time. For example, if an investor moves his or her securities from street name at a broker-dealer to DRS at a transfer agent, then the securities are only registered in the name of the investor & cease to be registered in street name (where they previously might have been registered in the name of a nominee such as Cede & Co.)
Q: If I buy securities through a broker-dealer & decide I want to hold my securities in DRS, what do I need to do?
A: First, check with the issuer (or its transfer agent) or your broker-dealer to find out if the issuer offers direct registration.
- If you are purchasing a security, tell your broker-dealer you want to hold your securities in direct registration.
- If you currently hold a physical certificate, you might mail or take your certificate either to the issuer (or its transfer agent) or to your broker-dealer with instructions to change to direct registration.
- If you currently hold your security in street name registration, instruct your broker-dealer to move your security position to the issuer for direct registration. (Not all broker-dealers have access to DRS, in which case, you can ask the broker-dealer to transfer your shares to another broker-dealer, which has DRS access. Keep in mind the first broker-dealer might charge a fee for the transfer to the second broker-dealer.)
Your broker-dealer might not offer an online method of providing these instructions, so you might need to call to provide such instructions.
If you seek to move your securities from street name registration at a broker-dealer to DRS at the transfer agent as discussed above, you should be aware that there are two main methods by which this usually can be done, which are referred to as: (1) “DRS transfer,” also referred to as a “Profile Modification System Movement,” & (2) “DWAC” (Deposit & Withdrawal at Custodian). Each method might accomplish the security movement you intend. One difference is that the DWAC method might involve additional administrative steps an investor must take, such as providing a medallion signature guarantee. You should check with your broker-dealer to understand the details of moving your securities through either method.
Once the change to DRS has been made, you typically will receive an account statement from the issuer (or its transfer agent) that provides you with periodic information concerning your DRS position. The transfer agent will also send you credentials to access your DRS account online.
Q: If I buy securities through a broker-dealer & I decide I want to hold my securities in physical certificate form, what do I need to do?
A:If you would like a physical certificate of securities ownership, tell your broker-dealer your choice at the time of purchase. If you elect a certificate & the issuer makes certificates available, one will be mailed to you.
If you already hold securities in street name & the issuer makes certificates available, ask your broker-dealer to obtain a physical certificate for you. The broker-dealer & the issuer might charge a fee for the certificate.
Q: If I buy securities through a broker-dealer & decide I want to hold my securities in street name, what do I need to do?
A: You might not be asked by your broker-dealer at the time of your purchase of securities in what form you wish to hold the securities. The broker-dealer might put your securities into street name in book entry form unless you request otherwise. So, in contrast to the situation discussed above where you would like a physical certificate, you might not need to take an affirmative action where you want to hold securities in street name. To obtain more information about the broker’s practices, you can check your account agreement with your broker-dealer, check your account settings with your broker-dealer, & speak to your broker-dealer.
With street name registration, your broker-dealer will send you a confirmation & periodic account statements acknowledging your ownership.
If you currently hold a physical certificate & want to change your registration to street name, check with your broker-dealer to see if they accept delivery of certificates. If they do, follow the directions of your broker-dealer to submit the certificate & make the change. The broker-dealer might charge a fee for this service.
Q: What do I have to do to sell my security?
A: The process of selling securities—& the amount of time needed to execute a trade—varies based on the way the securities are held.
To sell a security held in direct registration:
- instruct the issuer (or its transfer agent) to sell your security (where the issuer or its transfer agent has a program in place to accommodate sale requests); or
- instruct your broker-dealer or the issuer (or its transfer agent) to electronically move your security from direct registration to street name book entry form at your broker-dealer so that your broker-dealer might sell the security for you.
Note, the amount of time needed to execute a trade will vary based on the steps needed to execute the trade.
To sell a security held in street name registration:
- instruct your broker-dealer to sell your security;
- instruct your broker-dealer to electronically move your security to the issuer (or its transfer agent) to sell (where the issuer or its transfer agent has a program in place to accommodate sale requests); or
- instruct your broker-dealer to electronically move the security to another broker-dealer to sell.
To sell a security for which you hold a physical certificate:
- check with your broker-dealer to see if they accept delivery of physical certificates, & if so, deliver the certificate to your broker-dealer according to the firm’s instructions & with your instructions to sell; or
- if DRS is enabled for the issuer & the issuer (or its transfer agent) has a program in place to accommodate sales requests, deliver the certificate to the issuer (or its transfer agent) with your instructions to sell. The issuer (or its transfer agent) will change the registration to DRS & sell the securities using a broker-dealer. When selling a security through the issuer (or its transfer agent), the issuer (or its transfer agent) will sell your security under the terms & conditions in place for that issue. For example, some sell orders might be executed on the day the issuer receives them, & some orders might be aggregated in batches for frequent, but not daily, execution. (Note: ask the issuer if it offers a selling service, if it offers market or limit sale orders, & what the terms & conditions are.)
Q: Can I place a limit order? Market order? Stop order?
A: You can place any of these types of orders if you use a broker-dealer to execute a transaction for securities held in direct registration, street name, or in certificate form but the timing of order execution will vary. You might also be able to place these types of orders through the issuer (or its transfer agent), if the issuer (or its transfer agent) has a sales facility that accommodates such types of orders. The issuer (or its transfer agent) will use a broker-dealer to execute the orders. Purchases made through the issuer (or its transfer agent) are usually executed under the guidelines of an issuer’s stock purchase plan using a “batch” process only. Check with the specific issuer or its transfer agent to find out precise information concerning the timing of transaction processing.
Q: What happens to my relationship with my broker-dealer if I choose to use direct registration?
A: You can maintain your relationship with your broker-dealer regardless of your choice of direct registration.
Q: If I hold a physical certificate & there is a stock distribution, will I get a new certificate for my additional shares?
A: The terms of a stock distribution are typically set by the issuer, & these terms might determine if you receive the stock in certificate form or receive the stock in DRS. If the issue is eligible for direct registration, it is frequently the case that you will receive your securities in DRS form instead of in certificate form. Some issuers that formerly issued stock certificates no longer do so.
Q: What are the fees associated with direct registration?
A: There typically are no fees charged by an issuer (or its transfer agent) for direct registration, however, you should always verify this information with the issuer or transfer agent. Because broker-dealers offer differing services & plans, contact your firm to learn what, if any, fees it charges.
Q: If I opt for direct registration, what happens if I lose my statements?
A: If you ever need a duplicate periodic statement of account, contact the issuer (or its transfer agent) to receive a copy.
Q: What happens if my physical certificate is lost or stolen?
A: Brokerage firms, banks, transfer agents, & corporations have procedures in place to help investors replace lost or stolen certificates. If your securities certificate is lost, destroyed, or stolen, immediately contact the transfer agent & request that a “stop transfer” be placed against the missing securities. If you have a relationship with a broker-dealer, your broker-dealer might be able to assist you with this process.
The “stop transfer” helps to prevent someone from transferring ownership from your name to another’s & might help prevent an unauthorized sale of the securities. The transfer agent or broker-dealer will report the certificates missing to the SEC’s lost & stolen securities program. For more information, please read the SEC’s “Fast Answer” on Lost or Stolen Stock Certificates.
Q: How are my securities protected if I choose street name ownership?
A: Nearly all broker-dealers are members of Securities Investor Protection Corporation (“SIPC”). If a SIPC member fails, SIPC protects customers of that SIPC member against the loss of securities & cash deposited with the SIPC member for the purchase of securities. If a broker-dealer fails, SIPC advances up to $500,000 per customer (including a $250,000 limit for cash claims) to cover a shortfall in customer property. Many broker-dealers also carry insurance in excess of SIPC’s coverage. However, SIPC does not protect you against losses caused by a decline in the market value of your securities. For more information about SIPC coverage, please read the SEC’s “Fast Answer” on SIPC protection.
Considerations for Crypto Assets held by Unregistered Intermediaries
Crypto assets are issued &/or transferred using distributed ledger or blockchain technology, so the way they are held differs from traditional securities. In general, the person holding the private key to a wallet address on the appropriate blockchain can transfer any assets held in that address. Investors can choose to hold the private keys themselves. But if investors want to trade crypto assets through an unregistered intermediary, the intermediary typically requires the investor to transfer the crypto assets to a wallet for which the intermediary holds the private keys.
Investors who deposit funds or crypto assets with an unregistered intermediary might cease to have legal ownership of those assets & might not be able to get those assets back when they want to. Over the past year, a number of unregistered crypto intermediaries have faced severe financial difficulties, sometimes resulting in suspending customers’ ability to withdraw any assets. Some of these intermediaries have entered bankruptcy proceedings, & it is unclear how much of their holdings (if any) customers might be able to recover. Investors need to be wary of claims that “you always retain ownership of your crypto assets” & “you can withdraw your assets whenever you like.”
Many of these intermediary services, when they involve crypto asset securities, require that the intermediary register with the SEC. For example, there is a particular type of broker-dealer, known as a special purpose broker-dealer, that is registered with the SEC & authorized to custody crypto asset securities on behalf of customers. Similarly, trading platforms for crypto asset securities would need to be registered as an exchange or subject to an exemption from registration (such as an alternative trading systems (ATS) subject to Regulation ATS). However, very few crypto intermediaries have registered with the SEC, & the SEC has brought a number of enforcement cases against crypto intermediaries for failing to register. Investors should inquire from any crypto intermediary soliciting their securities business whether it is registered with the SEC.