Why Direct Register your shares?

What is the Direct Registration System (DRS) and why should every investor know about it?

The Direct Registration System (DRS) allows any company that issues stock to use a third-party company to maintain a stockholder record of exactly which investors own each and every share that exists. It can be compared to a digital stock certification.

 

For example, over 6,000 US companies Computershare as their third-party company or “transfer agent” and have been in business since 1978.

 

Computershare is the chosen transfer agent of over a third of the US Stock Market e.g.:

  • Apple

  • Microsoft

  • Tesla

  • Amazon

  • Overstock (they offered the first crypto dividend)

Full list: https://www-us.computershare.com/Investor/#DirectStock

More information on Transfer Agents: https://www.investopedia.com/terms/t/transferagent.asp

The Distribution of Shares

Company share structure

Source: Computershare

Before computers, paper certificates were mailed to you - the investor - with your actual name printed on every share you own. Nowadays book entries are used in place of paper certificates. Originally, this was intended purely to speed up the process and get rid of unnecessary paperwork. The multiple institutions created to handle the book entries and clearing of trades have, over the course of the few decades, merged into a single private organization known as the DTCC (Depository Trust and Clearing Corporation).

When you use a broker to buy stock the DTCC’s subsidiary, the DTC (Cede & Co.) is the name that is entered on the “books” at Computershare for every single broker held share. You are only the “beneficial owner” on your broker’s books, who is the “beneficial owner” on the DTCC’s books. The DTCC is the primary owner, the broker the secondary owner, and the average investor is a tertiary owner on the share that they bought and paid for.

 

The only way for an average investor to be the primary owner of any shares of stock they purchase is to direct register that stock with the transfer agent for the company. It puts them on the same level of ownership as the DTCC - directly registered in the ledger of the company whose stock they own. Direct registered stockholders have true possession of their investment and are listed by name in the company’s ledger. Shareholders who hold through brokerage companies cede their ownership rights to others (like the DTCC’s ‘Cede & Co' & broker-dealers). Leaving them vulnerable to short selling.

Read on to learn more about short selling, how it can be abused, and how it can lead to short squeezes.