In some cases, you may be able to register the securities directly on
the books of the issuer or its designated transfer agent, using the Direct Registration System (DRS).
Street name registration
Today, about 75% of investor accounts are held in street name. The securities you own are recorded
on your brokerage firm's books, so there's no need for you to hold physical certificates as proof of
ownership. Your broker will send you periodic statements listing all of your holdings, credit your account with dividend and interest payments, and provide you with tax information, annual reports, and proxies for the securities you own. An added benefit of street-name ownership is that your securities
are insured through the Securities Investor Protection Corporation (SIPC) in the event the brokerage firm goes bankrupt.
Direct Registration System
You may also have the option to register your securities directly on the issuer's
books, through the Direct Registration System (DRS). As with street name registration,
there's no need to hold physical certificates, and your securities can be transferred from
the issuing company or its transfer agent to your broker electronically. Currently only a small percentage of listed securities are eligible for direct registration. However, that number is expected to grow as the New York Stock Exchange, American Stock Exchange, and NASDAQ have recently approved DRS as a listing requirement, which will be phased in over the next two years.
Physical certificates vs. book entry
While some investors choose to hold paper certificates because they think it's safer than book-entry ownership,
in fact, the opposite is true. Approximately 400,000 paper
certificates are reported lost or stolen every year, costing
shareholders approximately $50 million annually in replacement fees.
There are other disadvantages to holding paper certificates as well. If there is a corporate action, such as a
merger
or
acquisition, you alone are responsible for delivering your certificates to the issuing company or
its designated transfer agent to be replaced. And if you move and fail to notify the company,
it may not know how to reach you or send you
dividends.
