Investing in the stock market is one way to build your wealth. Stockholders will have a stock certificate as proof of their investment. While share certificates have been around for centuries, times are changing. Now companies are opting to use electronic recordkeeping.

Digital technology is more accurate and efficient. Especially when it comes to this kind of transaction. It’s also why the Direct Registration System has come on its own.

What is DRS in Stocks?

The Direct Registration System lets investors hold their stock certificates in electronic form. Shareholders will forego having a physical document as proof of stock ownership.

The DRS is at its core a form of security registration method for investing. It’s now the go-to system for many popular blue-chip stocks. It provides investors with an alternative way to hold their securities. They can opt to have their securities registered straight onto the issuer’s records. But it will be in a book-entry form.

Investors won’t receive a physical stock certificate. They will get account statements sent during specific periods. The transfer agent or issuer will send at least one report per year. But it can also be every quarter based on your preference.

The transfer agent or issuer will send dividend payments straight to the investor. They’ll also do this with annual reports and proxy materials. Investors will receive these documents via mail.

What are the Advantages of DRS?

Direct registered shares started in 1995. It came about when investors became worried about their portfolios. They thought they might have problems claiming them from the brokerage firm. There was a fear they won’t be able to get their investments back if the agency goes under. The creation of the DRS gave investors several benefits.

• It protected investors against risk. DRS stocks can protect you against counterparty risk. You’ll have to undergo a recovery process if your stockbroker becomes bankrupt. But you will have your shares reimbursed.
• Documentation is fast. Stockbrokers are notorious for having a slow process. Especially when it comes to delivering documents. You’ll be waiting a long time to get proxy statements or 10K filings from the companies you bought shares from. A DRS share is faster. Documents are then sent straight to your address of record if you’re registered.
• There’s less chance of stolen or misplaced certificates. You might lose or misplace your share certificate. It can even become stolen or destroyed in a fire or other natural calamities. You won’t encounter these problems with stock DRS. Documents are safe and available anytime since it’s in digital form and saved online.
• You can save money. Transfer agents will tell you to have your stock certificates insured when it’s mailed. It’s often insured by around 5% of the stock’s market value. Payment for this insurance will come out of your pocket. The amount is an estimate of what the transfer agent will charge you to replace certificates. You won’t have to worry about this if your shares are in digital format.

Understanding the Disadvantage of DRS

Your transfer agent will tell you there’s only one disadvantage to using DRS. It’s the lower liquidity. You cannot sell your shares right away. There’s a process you have to undergo. First, you’ll have to submit instructions to your stockbroker. They will then collate all your sell orders. They will include those of other sellers. Then the broker will do the trade on a set schedule. This prevents investors from dumping their shares in the middle of panic or unrest. It also means you cannot get money fast if you need it. You might have to wait a few business days before you can sell shares in DRS.

Is the DRS right for you? It’s an ideal choice if you’re planning on buying a lot of stocks. It’s also best if you will be holding those stocks for several years. Using a DRS means you won’t have to worry about a bankrupt broker. It’s also a good choice if you prefer electronic transactions.

A True Partner for Your Business

You need the right partner to succeed in business. Legacy Stock Transfer is a premier full-service stock transfer agency. We’re a family-owned and operated company. We’ve been in the business for almost three decades now. We’re registered with the SEC and the Securities Transfer Association. Our team of experienced transfer agents can use DWAC and DRS systems. We also use FAST. Give us a ring at 972-612-4120 or email us at info@legacystocktransfer.com.