Keywords: “financial intermediary”, “financial intermediaries”, “transfer agent”, certificate,

Eliminating a Financial Intermediary

Note: In general retirement brokerage accounts are more restrictive: much of the below does not apply. However, see unverified note, below.

Holding a paper stock certificate is one way to eliminate a financial intermediary between you and a marketable asset you have – say with a brokerage such as Merrill Lynch.

My older sister intuitively understood this when I first started mumbling about it after having seen Jim Sinclair advise it.

Sinclair is a very sound thinker, and honest, but his writing leaves a lot to be desired. So I've been trying to restate this notion succinctly. So far, I've failed.

However the following 3 'cases' of equity (share) ownership and ownership transfer probably get the idea across.

Case 1.

Say I have a certificate for some shares of ExxonMobil.

I arrange to sell these shares to a friend down the street.

We effect the transfer of ownership by sending my unsigned stock certificate and paperwork (a stock power signed by me) to

ExxonMobil Shareholder Services (ExxonMobil has outsourced its transfer agent function.)
c/o Computershare
P.O. Box 43008
Providence, RI 02940-3008

with the new owner's address, etc. We do or don't request a paper certificate for the new shareholder.

(Note: According to my sister, ExxonMobil in Dec 2007 will let you ask its transfer agent to give you a paper stock certificate.

However AT&T apparently will not, since 2002, allow this.)

Case 2.

Say I have an account at my stock broker, Fidelity, and execute a trade online so that I 'have' some shares of ExxonMobil.

These shares are in an unallocated pool of ExxonMobil shares owned by Fidelity. They are in Fidelity's name (ref1 , ref2 ).

But for capital gains purposes, for receiving dividends, etc they are “really” owned by me.

More generally shares are owned by any of these entities:

--- individual client accounts like mine

--- Fidelity's own account or

--- a mutual fund Fidelity manages

--- possibly other entities

Fidelity may have loaned some ExxonMobil shares from its pool to any of these entities so that the entity could sell the stock without owning it (sell it short).

Clearly Fidelity needs good bookkeeping to keep this all straight, and they do have it.

Also, it is up to Fidelity to make sure that they keep enough shares so that the sum of those owned for all of these entities matches what they have in their pool very closely, and they can do that.

If Fidelity goes bankrupt these entities “really” owning shares of ExxonMobil still really own the shares.

But if Fidelity somehow does not have these shares, then ............!!!!!

Case 3.

I buy 100,000 worth of the Prudent Bear Fund, which Schwab (and Google and Fidelity) terms BEARX.

From the January 2008 Prudent Bear Funds, Inc. prospectus, I know that I can bypass Schwab entirely by dealing directly with Prudent Bear Funds, Inc. and its transfer agent. The prospectus gives the addresses and phone numbers. It explains in understandable terms how to open an account, make an initial or subsequent investment and to redeem (sell) shares.

From the prospectus I conclude that my broker-dealer, Schwab, is a “Servicing Agent” for me and that Schwab, not I, is the shareholder of record. I also learn that Servicing Agent may charge me more to acquire a given number of shares than I would pay if I had dealt directly with Prudent Bear Funds, Inc.. For example, this will count as a Schwab transaction just like any other security.

Bottom line

It's avoidance of a bankruptcy-capable intermediary , your online stockbroker for example, that is being advocated.

In addition, if you have a margin account, your shares may be lent by your brokerage to another client who will “short” sell them. While short selling is conceptuallly OK with most, it can be and is used to manipulate stock prices.

Unless you know what a security entitlement is, you likely are unaware that securities at your broker are a contractual claim against the broker – they are not property!!! They will not be returned to you during a bankruptcy like a personalized umbrella you happened to leave there the last time you visited. You should immediately read this, or similar!

If Fidelity (In early 2008, Merrill Lynch or E-Trade would make a better example!) should go bankrupt, it could be months, even years, between when you ask for your stock and when you get it – if you get it.

“You're a little safer if you get a stock certificate” is an easy and generally-accurate way to tell your friends who have and keep stocks to do this.

None of this, of course, keeps your ExxonMobil or your Enron from going bankrupt!


A website named maintains Direct Registration FAQ with about 12 questions covering this subject fairly well.

Publicly traded companies are required to offer book entry registration of shares via the Direct Registration System (DRS). When shareholders request their shares be registered as a book entry, they become registered shareholders and clients of the company's Transfer Agent.

Computershare sends statements to clients (shareholders). If a book entry registered shareholder wishes to negotiate their shares, they can request from Computershare the (linked below) DRS Direct Transaction Form. Once the form is completed and returned to Computershare, the shares can be negotiated as they request. Other transfer agents have similar forms for their respective companies.


Click here to view Computershare?s DRS Transaction Form in PDF format


Retirement Accounts:

Unverified internet posting:

Here is what I have done for ABC shares I own in an IRA:

I am using Charles Schwab. For all my ABC Inc. shares I requested a stock certificate in the name of Charles Schwab, for the benefit of "My Name". Then I instructed them to hold the stock certificate in safekeeping (their safe). They charge me $50/year per certificate for this service.

Once CS told me it was taken care of. I called the Corporate Secretary at the company in question and she confirmed that my ABC certificate number showed up on the company records. She also confirmed the way the certificate read and the number of shares.

I did not request it, but the transfer agent also sent me a notice that a certificate was issued as well.

I can tell you when I made the request of CS earlier this year their first response was that they could not do this for shares in an IRA. I told them that it was in fact possible, correct and legal as advised by my counsel. It took some time but they were able to get it done.

Additional material not yet integrated into the above can be found at C:\Data\Personal Finance, Investing, Estates, Retirement\Asset Protection\Eliminate Unnecessary Intermediaries (my computer) or here on the web.

About DTIC

Jim Sinclair on July 14 2008 in the context of the FDIC takeover of IndyMAC

The FDIC says there is no problem because they can raise premiums paid by banks.

Sure, but how long would it take to replace their capital if 2 or more significant banks were to fail? That replacement would likely take a decade.

All of these cosmetic insurance schemes on deposits and securities will fail to pay in cash. You will get paid in short term, renewable (but not at your decision), government notes.

Now do you see why removing as many financial agents between you and yours is so important?

Now do you see why taking paper certificates or becoming a book entry at the transfer agent is no waste of your time?

If you have not protected your share investments do it tomorrow and as a byproduct dump the shorts.

Posted  On: Wednesday, July 09, 2008, 3:58:00 PM EST

Becoming A Book Entry On The Books Of The Transfer Agent

Author: Jim Sinclair

Dear CIGAs,

To start, here are several definitions you should familiarize yourself with:

Transfer Agent:
The record keeper employed by a public corporation to prepare and maintain records related to the accounts of their shareholders. Such information would include the name of each registered shareholder, his or her address and the number of shares owned. The agent oversees the issuance of certificates to new shareholders and the destruction of certificates that have been sold.

It does not matter if a transfer agent is owned by a bank or financial entity because it is a separately incorporated non financial entity posing no financial risk to those it accounts.

Street Name:
A term used for describing a stock that is held in the name of a brokerage firm, instead of the actual purchaser of the stock. When you buy a stock and let your brokerage firm hold the stock certificate on your behalf, the stock is said to be held in “street name.”

Nominee name:
An official of a financial institution or some other appointed agent to whom securities or other funds are transferred by agreement with the actual owner. Nominees facilitate the collection and distribution of income from securities (when such securities are held in the name of a nominee), and facilitate the sale or purchase of securities when it may be inconvenient or impractical to obtain the necessary signature of the principal in order to conduct a transaction.

For additional definitions visit:

There are three primary forms to represent share ownership:

  1. Ownership via your account at a broker or bank in which the broker or bank holds all the shares for all clients in that share in what is called a street name. Street names today are a nominee name such as CEDE. The broker or bank then shows your ownership of this security in your monthly statement in your cash or margin account. Your shares will remain in the nominee account under the nominee name of the bank or broker in the form of a computer entry.

  2. Ownership via paper certificate whereby an entity called a Transfer Agent has been informed by your broker of your coordinates and request for the delivery of a paper certificate. The Transfer Agent follows the instructions of your broker and sends the paper certificate with your name on it to either you directly or to your broker who most often then sends it to you. The process reduces the street name position by the amount of your position. Your ownership drops off your brokerage or bank statement.  Yes it is that easy.

  3. Ownership via the form of book entry on the books of the transfer agent: Instruct your bank or broker that you wish your shares to be in the form of a book entry at the transfer agent. Your broker then instructs the Transfer Agent of your request, giving them all your information. The transfer agent reduces the street name position by the amount of your holdings and puts your name in their books as a book entry. You now fall off the books and records of the bank or broker.

If you prefer method 2 or 3, all that is required is for you to instruct your broker or bank of your wishes.

If their eyes glass over in a blank stare or they say ?WHAT?? you do the following:

  1. Call the company you are a shareholder of and ask the name and coordinates of their transfer agent. If they say they have none and are totally automated you are out of luck. This is rare but growing.

  2. You call the transfer agent telling them of your broker?s rank ignorance. Ask them how to instruct the broker so that your needs are met. Call your ignorant broker or bank back and tell them you spoke to Mr./Ms. Whomever at the transfer agent and you wish them to inform Mr./Mrs. Whomever of your wishes.


Retirement accounts are hostages. You cannot overcome that in any of the above ways.

There is one more alternative that may help the retirement account holder, but will certainly protect the investor who is concerned over the financial health of your financial agent holding your investments.

Monty Guild wrote the following excerpt in early April of this year:


In our opinion, all investors and all recipients of pension plans or holders of IRAs should check the financial stability of the custodians of the assets that they own. Equally important, is the legal wording of your relationship with your custodian. Have your attorney look over the wording and make sure that the custodian is segregating your assets and will audit your assets annually to make sure that they are segregated from other clients and from the assets of the firm itself.

We have spent money on attorneys who review the legal language in our custodial agreements as we believe that it is essential knowledge.  We are money managers, not attorneys. Please have an attorney look over the legal language of your relationship with your custodian...what you find may surprise you."

From LeMetropole Cafe:
Nov 7, 2008

......shares.....register with the transfer agent. is true that most stocks are not eligible for direct registry.

Last summer I spent hours looking into the matter. I cannot promise that what I came away with is completely correct, but it may be helpful:

"DRS" (= "Direct Registration System") is a fairly new service from Computershare. Only some companies participate, whereby they hold the shares for you, registered in your name. You call 1-800-564-6253, and their agent looks up whether the companies you ask about participate. When calling I found their agents very helpful--but I had previously made sure that I only asked them about companies that use Computershare, so I did not waste their time. Most companies I asked about did not (at least yet) use DRS, but TRE was not the only one that does (VGZ, for example, uses it). Once you identify one of your brokerage-held stocks as a Computershare DRS-eligible stock, but your broker is not yet aware of the DRS program, you then can advise the broker to call Computershare's broker number, 888 838 1405, to learn what to do.

At least at the time of my research, CIBC Mellon, Equity Transfer Services, and Pacific Corporate Trust did not have a program like DRS (a bit odd for Pacific Corporate Trust, since it is Computershare's parent company).

As far as getting certificates: My totally unprofessional opinion is that if DRS is unavailable or (for you) undesirable, it is a very good thing to do, even though it undeniably a massive nuisance (especially for people like me who do lose things). If you have your certificate, you have immediate documentation of ownership even if your brokerage goes bankrupt. Also, if all of us small share holders get our certificates (or use DRS) in concert, we may make life for the short sellers a little more difficult.

I think that it is particularly important to get one's certificates even if the fees for getting them have increased--and in fact especially if they have increased. .....I recognize that the analogy to withdrawing money from banks/cons is imperfect, but I am inclined to think that a brokerage that increases its fees for certificates (and especially one that won't give you certificates) may be indicating that it is in particularly great financial distress. ......

Posted June 2, 2009

.............the paper certificates are no longer available........................

Dear Beth,

That is not entirely correct that paper certificates are not available.

When you make you purchases instruct your broker that you wish "Direct Registration" at the transfer agent, the 2nd best method of holding your assets.

Thereafter and when confirmed that you are in "Direct Registration" system, contact the transfer agent and request paper certificates.

In many cases it will work. This is certainly true for AMEX:TRE/TSX:TNX.


The following was at on Dec 22, 2011.

Direct Registration FAQ is a fairly comprehensive page on the subject.

There is a lot at the website, such as help finding the agent for a particular stock. But it is a business, so expect to pay for what you get.

Direct Registration FAQ&A:

What is the Direct Registration System?

  1. After I make my decision on how I want to hold my security, what do I do?

  2. How do I sell my security held in Direct Registration?

  3. How do sell my security held in Street Name?

  4. How do I sell my security held in my possession?

  5. Can I place a limit order, market order or stop order?

  6. What about my relationship with my broker if I use direct registration?

  7. Will I get a certificate for additional stock distributions if I physically hold my shares?

  8. What are the fees associated with direct registration?

  9. If I opt for direct registration, what happens if I lose my statement of ownership?

  10. What happens if my certificate is lost or stolen?

  11. How are my securities protected if I chose street name ownership?

What is the Direct Registration System?

DRS provides for electronic direct registration of securities in an investor's name on the books of the transfer agent or issuer, and allows shares to be transferred between a transfer agent and broker electronically.

After I make my decision on how I want to hold my security, what do I do?

Direct registration is a relatively new method to hold corporate equity, and not all issuers currently offer this option. You should check with the issuer or your broker to find out if the issuer offers direct registration. If you are purchasing a security, tell your broker you want to hold your securities in direct registration. If you currently hold a certificate, you can mail or take your certificate either to the issuer or to your broker with instructions to change to direct registration. If you currently hold your security in street name registration, you can instruct your broker or the issuer to move your security position to the issuer for direct registration. In any situation, you will receive a statement of ownership from the issuer acknowledging your DRS book-entry position once the change has been made . If you want a certificate or if you want to use street name registration, tell your broker your choice at the time of purchase. If you elect a certificate, one will be sent to you. If you chose street name registration, your broker will send you a confirmation and periodic account statements acknowledging your ownership. If you currently hold a certificate, you can deliver the certificate to your broker with instructions to change your registration to street name registration. If you currently hold in street name registration, you can tell your broker to obtain a certificate for you.

How do I sell my security held in Direct Registration?

You can instruct the issuer to sell your security (many issuers can accommodate sale requests); or you can instruct your broker or the issuer to electronically move your security to your broker for your broker to sell; or you can request a physical certificate and deliver it to your broker to sell.

How do I sell my security held in Street Name?

You can instruct your broker to sell your security; or you can request a physical certificate and deliver it to another broker to sell; or you can instruct your broker or the issuer to electronically move your security to the issuer for the issuer to sell (many issuers can accommodate sale requests) or to electronically move to another broker to sell.

How do I sell my security held in my possession?

You can deliver the certificate to your broker with your instructions to sell or you can deliver the certificate to the issuer with instructions to change how you hold your security from certificate to direct registration and to sell (many issuers can accommodate sale requests). When selling a security through the issuer, the issuer will sell your security under the terms and conditions in place for that issue. For example, some sell orders will be executed on the day the issuer receives them, and some orders are aggregated for frequent, but not daily, execution. (Note: you should ask the issuer if it offers a selling service and what the terms and conditions are.) Proceeds from the sale will be mailed to you three business days after the date of sale. When selling through your broker, your instructions will be acted on immediately and in accordance with the guidelines it provides to you. Proceeds from the sale will be made available to you or credited to your account three business days after the date of sale.

Can I place a limit order, market order or stop order?

No, only a broker can execute a limit, market, or stop order.

What about my relationship with my broker if I use direct registration?

You can maintain your relationship with your broker regardless of your choice of registration. When you purchase a security to hold in direct registration, you can tell either your broker or the issuer to include pertinent broker information in the issuers records. If you do not have your broker information included in the issuers records at the time of purchase and later want to or if you want to change the broker information in the issuers records, you may do so. You should contact either your broker or the issuer to obtain information on the procedures and the documents required for such actions. You should note that to change or add a broker at the time you choose to sell your shares through your broker could create a delay in getting the securities to your broker in time for settlement.

Will I get a certificate for additional stock distributions if I physically hold my shares?

If the issue is eligible for direct registration, you will probably receive a statement of ownership instead of an additional certificate. You always have the right to request and receive a certificate or to electronically move your securities to your broker.

What are the fees associated with direct registration?

There are no fees charged by an issuer for direct registration. However, because brokers offer differing services and plans, you should contact your broker to learn what, if any, fees it charges.

If I opt for direct registration, what happens if I lose my statement of ownership?

If you ever need a duplicate statement of ownership, you should contact the issuer which will mail you a new statement of ownership.

What happens if my certificate is lost or stolen?

You should immediately notify the issuer of the loss or theft and request a replacement certificate. If you have an account with a broker, you can ask your broker to notify the issuer on your behalf. Other financial institutions where you have accounts, such as banks, may also notify the issuer for you at your request. The issuer may ask you to complete an affidavit explaining the circumstances of the loss or theft. You will have to pay the cost of an indemnity bond to protect the issuer against future claims on the certificate. (Indemnity bonds usually cost approximately 2% of the value of the securities.) If you find your original certificate after you have received a replacement certificate, you should immediately return it to the issuer or your broker.

How are my securities protected if I chose street name ownership?

Nearly all brokers are members of Securities Investor Protection Corporation (SIPC). As a result your securities and money held at your broker are protected up to $500,000 with a $100,000 limit for cash. Many brokers also carry insurance in excess of SIPCs coverage. However, SIPC does not protect you against losses caused by a decline in the market value of your securities. If needed, your periodic account statements and confirmations are sufficient to establish your claim with SIPC for securities and money. You should keep those records in a safe place in the event that you need to file a claim with SIPC. If you want to confirm that your broker is a member of SIPC, you should call SIPC at (202) 371-8300 and ask for the Membership Department.