Instructions for Securities, Cash, and Mail ....

When a customer buys securities, someone must hold them. There are three basic ways this can happen:
•    Transfer and ship
•    Transfer and hold in safekeeping
•    Hold in street name
Maybe Grandma wants to put the cute, colorful Disney stock certificates right over the baby crib in the spare bedroom. If so, she'll request that you register the certifi¬cates in her name and ship them -transfer and ship.
Some investors have the broker-dealer transfer the securities into the name of the investor and then hold them in the firm's vault (transfer and hold). The firm would likely charge a fee to do that. So, most investors have the broker-dealer hold the securities in street name. the firm, in this case, is the "nominal owner" and the customer is the "beneficial owner" of the securities.

And, as we're about to see, shareholders can now use the direct registration method.

Whatever the customer chooses, most customers these days have never seen a stock or bond certificate because their broker-dealer holds them in street name (name of the firm) and may have them on deposit at centralized "depositories" such as the Depository Trust Company (DTC). From there, the securities are transferred through electronic book/journal entries only, which explains why many registered representatives have also never seen a stock or bond certificate. It also explains why good record keeping is such a concern for your firm's principals and for FINRA. From the Depository Trust Company's website at we see how things cur¬rently work in terms of how a customer can register/hold securities:

With the implementation of direct registration, investors have three securities ownership options:
Physical Certificates: Certificates are registered and issued in the investor's name. The investor will receive all mailings directly from the issuer or its transfer agent, includ¬ing dividend or interest payments, annual reports, and proxies.
Street Name Registration: Securities are registered in the street name of the investor's broker-dealer. While no physical certificate will be issued to the investor, the broker-dealer will issue, at least quarterly, account statements of the investor's holdings. The broker-dealer will pay dividends or interest to the investor, as well as provide the investor with mailing material from the issuer or transfer agent.
Direct Registration: This option allows the investor to be registered directly on the books of the transfer agent without the need of a physical certificate to evidence the security ownership. While the investor will not receive a physical certificate, he or she will receive a statement of ownership and periodic (at least yearly) account statements. Dividend or interest payments, proxy materials, annual reports, etc., will be mailed from the issuer or its transfer agent.

Direct registration, then, is a relatively new development. The website referenced here mentions that since the NYSE allowed their listed companies to issue spin-off stock and stock-split shares as book-entry statements instead of certificates, some 300 companies have decided to allow shareholders to use direct registration with the transfer agent, rather than via their broker-dealer under the street name method.

Brokerage accounts contain securities and cash. The cash in customer accounts earns interest for the broker-dealer, and for some firms, this represents most of their profits. The trading commissions cover expenses, but the spread between the high rate of interest they earn on customer cash and the low rate paid to customers is how they make their money.

Then again, it's not really their money. Customer cash is referred to as a free credit balance and is a liability of the broker-dealer that must be paid on demand. As the SEC rule explains, "The term 'free credit balances' means liabilities of a broker or dealer to customers which are subject to immediate cash payment to customers on demand, whether resulting from sales of securities, dividends, interest, deposits or otherwise."

As with a bank, a broker-dealer being able to honor customer requests for withdrawals is important. It is why the broker-dealer's minimum net capital is regularly monitored both internally and by the securities regulators.

Customers indicate on the new account form what the firm should do with their free credit balance. Some customers choose to have the cash "swept" into a money-market account, others into FDIC-insured deposit accounts. Either way, the industry calls these accounts "sweep accounts".
Alternatively, the cash can be sent to the customer, or, it can be credited to her cash balance until she decides how to reinvest the proceeds into more securities.

The firm will be sending the customer monthly or (at least) quarterly account statements confirming the positions in the account and the value of the securities and the cash. Also, any time the customer buys or sells, a trade confirmation will be mailed to the customer's address of record. These days, statements and confirmations are often sent by email, but a customer must sign off on this method, which is much faster and cheaper for the firm to use. Confirmations and statements must be sent to the customer, unless the customer has instructed the firm in writing to send them else where, e.g., his financial planner/investment adviser. Or, if the customer gives written instructions to hold back on delivering such mail while she is traveling, the firm can hold it for a reasonable length of time as instructed by the customer.


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