Keeping Securities Safely
Description
This article is from the What Every Investor Should Know.
Keeping Securities Safely
Today, many debt securities are in electronic book-entry form. Ownership is transferred via computer rather than via actual transfer of paper certificates, reducing the possibility of loss, theft, or mutilation of the certificates. In the future, more and more securities certificates will be in this electronic form.
There are still, however, many securities that are in certificate form. Certificates representing your ownership of stocks or bonds are valuable documents and should be kept in a safe place. If a certificate is lost or destroyed, it may prove time-consuming and costly to obtain a replacement. Furthermore, some securities certificates may not be replaceable at all.
Investors who purchase corporate stock through a brokerage firm usually have several choices as to how their stock will be handled. If they wish, they may receive a certificate, made out in their name, representing the number of shares purchased. When the stock is resold, the certificate must be endorsed and delivered to the selling broker.
Alternatively, investors may have certificates held in their names at the brokerage firm, or it may be held by the broker in what is known as "street name." In the latter instance, the brokerage firm is recorded on the list of shareholders of the corporation even though the customer is the actual or "beneficial" owner. Thus, any communication from the company to its shareholders--such as annual reports and proxy materials--would be sent to the broker, not to the customer. The broker then must forward the material to each beneficial owner, unless shareholders have given permission for issuers of shares to communicate with them directly.
There are advantages and disadvantages to allowing your broker to hold your stock in a street name. On the one hand, if the broker takes responsibility for safeguarding the certificate, your account is protected by SIPC, and the transfer process is facilitated should the stock be sold. On the other hand, you may not receive shareholder information as quickly because it is sent first to the broker; in addition, if an account is not actively traded, the broker may impose a custodial fee.
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