GameStop is once again in the news over its direct registered shares. The controversial retailer revealed that 25% of its shares underwent direct registration.
Wall Street has no reaction to the revelation yet. Not that it matters as there’s nothing they can do about it. SEC Head Gary Gensler said in an interview that it had allowed direct registration since the 90s. He pointed out that the Direct Registration System is available for all investors.
The news about GameStop’s record holders has generated interest in DRS. Here’s a quick overview of how and why it works.
What is a Direct Registration System?
Electronic record management has been around since the 90s. But it’s only in recent years that stock markets have embraced the practice. The need for safer and more efficient transactions resulted in new technologies. This has also led to the Direct Registration System (DRS).
DRS enables investors to hold their assets in electronic or book-entry format. The service lets shareholders move their securities using an electronic method. In short, shareholders can hold their stocks without needing a brokerage firm. They will instead register their DRS shares via a transfer agent.
The registered securities doesn’t need a physical security certificate to prove ownership. Share ownership used to become proven via paper certificates. But this method is inefficient and outdated. Paper stock certificates can become lost or damaged.
Changes in SEC regulations in 2007 saw DRS become a rule for all listed issues on the country’s exchanges. It expanded to all companies, including foreign-listed ones in 2008.
Why Does DRS Work for Many Investors?
Are you interested in going down the direct registration road? You should verify that the company has DRS for its securities. You then choose between two options. One, you can elect to register straight on the company’s books. It doesn’t matter if you bought your shares through a broker or from the company. You can even buy from a transfer agent with a direct investment plan.
You don’t need a physical certificate to prove ownership with direct registration. But you will receive a statement of ownership. You’re sent account statements and dividends on a regular basis. The issuer will also provide you with proxies, annual reports, and various mailings.
DRS works for many investors because of the benefits it provides. For one, you’ll receive direct communications from the company. Because you’re registered on their books as a shareholder, you’ll have access to all reports.
The system is also very fast and efficient. Let’s say you want to sell your stocks through your broker. You can tell them to move your direct registered shares from the company’s books. They can then sell your securities. Since it’s all done using an electronic method, the broker can do this in a flash. There’s no need for you to fill out forms. If you do this the conventional way, you’ll spend too much time dealing with complicated forms.
There’s another upside to this. Shares held by a transfer agent can’t be lent to short sellers. It’s also a form of protection against broker bankruptcy.
Many investors love the fact that direct registration gives them more control. They can manage their holdings the way they want. They can also avoid the inconsistencies of trading. This often happens with market makers and brokerages.
Securities kept in a digital book mean no worrying about losing their certificates. It also won’t become stolen from them. They also don’t have to think about where they should keep their share certificates.
Of course, there is a downside to this. You won’t be able to buy or sell your securities at a specific market price or time. You’ll have to buy your shares for the plan at fixed times. For example, selling might become done once a week or four times a month. The shares are also bought and sold at an average market price.
Giving You What You Need
Managing investments is easy with Legacy Stock Transfer, Inc. We’re one of the top full-service stock transfer agencies in the country today. We’re a family-owned enterprise and treat our clients like one of our own. We’ll help you with direct registration and DTC eligibility application. Our services also include issuing new certificates and replacing lost ones. We can also deal with shareholder mailings and restrictions. Give us a call at 972-612-4120 or email us at info@legacystocktransfer.com.