Broker Check

September 5, 1995

New Securities Purchasing Rules

          On June 7, 1995 new rules went into effect that require all purchases and sales of securities to be "settled" on the third business day following the trade, or "T+3" as the new deadline is generally called. Previously, seven calendar days were allowed.

          Brokers will require buyers of securities to have their funds on deposit with them by the third business day after the trade is executed. Most will require sellers to have their securities on deposit on "T+3". Some brokers may adopt more stringent requirements while others may allow some leeway for certain customers or under certain circumstances.

          Because of these tight timeframes, most brokers are urging their regular customers to move all their securities from "registered form" to "street-name".

          This letter is designed to help you understand the differences between registered and street-name ownership, and the relative advantages of each.

What is registered ownership?

          If you have one or more stock certificates in your possession, or if you participate in a company-sponsored dividend reinvestment and stock purchase plan, you are considered a "registered shareholder". Your name and address are "registered" or recorded "on the books" of the issuing company, maintained by its transfer agent.

Advantages of Registered Ownership

  • All company mailings are sent to you by the company. Accordingly, they usually reach you much sooner than materials forwarded by your broker.
  • Dividends will also be sent directly to you. You can have checks sent directly to your bank.
  • Stock certificates represent proof of ownership. Having them insulates you from any operational or financial difficulties an outside custodian may encounter. It`s also easier to shop around, and possibly to choose a broker other than the one you bought through when you decide to sell. They also facilitate sales or transfers of shares that you may arrange on your own.
  •  Many companies offer dividend reinvestment and stock purchase plans which allow you to reinvest dividends, make optional cash payments or sell shares at little or no cost to you. Many dividend reinvestment and stock purchase plans allow you to keep all your holdings in "uncertificated" or "book-entry form", and to make gifts and privately arranged transfers of securities with or without the issuance of stock certificates

What is "street-name" ownership?

          If your bank or broker holds the securities you own, they are normally held in the firm`s name, or in a name it designates, rather than your own. This "street-name registration" makes it simpler to transfer shares from sellers to buyers or "settle" trades in a timely fashion.

Advantages of Street-name ownership

  • Street-name ownership can reduce some of the paperwork that comes with buying and selling securities. You won`t receive stock certificates when you buy and you won`t need to send them when you sell. This will also save you some trips to the safe deposit box.
  • With the new T+3 settlement date, stock certificates may have to be hand delivered or sent by overnight mail - an inconvenience and an expense that street-name registration eliminates.
  • Securities also need to be insured for 2% to 3% of their value when sent by mail. This is what it will cost to replace them if they get lost and represents an expense and extra work.
  • Street-name holders usually receive monthly or quarterly statements that itemize all the securities and cash on deposit, the current value of each security and the total value of the portfolio. (You will still have to save your confirmation forms, however, and figure out the tax basis on your own when you sell securities.)
  • Most important, perhaps, street-name registration allows you to sell securities - even if you are travelling- without having to worry about making timely delivery.

Deciding whether registered or street-name ownership is best for you-

          A good way to look at this decision, or any buying decision for that matter, is in terms of convenience and cost.

  • The more stocks you own and the more frequently you trade, the more convenient street-name registration becomes. On the other hand, if you rely on dividends to supplement your income, if you trade infrequently, or if you want to be able to choose among several brokers when you wish to sell a stock, registered ownership may be best for you.

          Take the time to investigate and compare all the costs that are involved for the services you will need. Be sure to ask about fees and service charges for opening, closing and transferring accounts, and for having stock certificates issued if this might be in your plans. Ask if there`s an annual fee for maintaining an account with the brokerage firm. This can be a significant item if you own relatively few stocks or trade infrequently.

          If you have any questions about these tax notes or any other matters, please call us.