For help using the new service, please contact your professional licensing program. We expect a processing delay for mailed applications and renewals. Renew or apply online for faster processing of your license. Thank you for your patience and we apologize for any inconvenience. The DRS was created in for those who didn't want their stock registered in the name of their firm. This gave investors many options. They could buy or sell from the transfer agent.
They could work with their favorite stockbroker to arrange trades through the DRS. Or they could work only through their broker. You would be the owner of your 1, shares of Apple, but Schwab would be the owner of record. Schwab then breaks down which client owns what shares within its own accounting and database.
It provides trade confirmations, brokerage statements, and tax records. In the case of margin accounts , you're left holding the bag with a general claim against the firm if the firm goes bankrupt. What happens to your shares that were held in a street name? This hasn't been a problem to date, but there's been a widespread issue that costs many investors a lot of money every few decades. This option has its limits. But between asset segregation and SIPC insurance, it's been very rare for a customer to fail to get their portfolio back in the event of a brokerage bankruptcy.
The Direct Registration System provides an extra safeguard. Using a DRS provides you with protection against counter party risk. You're going to have to go through the recovery process through SIPC insurance if your stockbroker goes bankrupt, and if your shares were held in a street name. But you'll hopefully receive a reimbursement. Your claim is with the company you own part of, not with the middle man, if your stock is held through the DRS.
Stockbrokers are famous for being slow when it comes to delivering annual reports, 10k filings, and proxy statements, from the companies of which you own shares. But the documents are mailed to your address of record, often promptly, when you're registered directly with the transfer agent through the DRS. Paper stocks can be misplaced, stolen, or destroyed. This is a problem you'll never have to face with the DRS.
This can save you money. It's the cost estimate of what the transfer agent will charge to replace them. Your broker can lend your shares to short sellers when you hold stock in a street name. Short sellers can drive down the price by selling short the stock , selling a borrowed stock, then buying it back cheaper.
This results in a profit for the short seller. It can lead to a tax problem when the dividends you receive are technically taken away from you. The short sellers will reimburse you with something known as a payment in lieu of dividends.
Your dividends won't meet the qualified dividend requirements for tax purposes, increasing your taxes on loaned shares. Many companies offer dividend reinvestment programs DRIPs. These are great if you want to reinvest your dividends by buying more shares of stock with little to no costs or fees. Alex Melvin shares what he learned during his experiences abroad and his inspiration for teaching. Watch our staff experts answer questions asked during a live webinar earlier this year.
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