Super Hero Origin Story of the Direct Registration System, a Transcription

Before we begin, we might ask, ‘What is DRS?’ (this is all regarding shares, stock, and equities).

We get to hear from the creator/inventor herself, Dr. Susanne Trimbath PhD (here is her twitter)

She works with STP advisors, their website is here;

And please do buy her book(s) and support her if you’re interested in these kinds of information, Here is a link.

And these are the audio files being transcribed from this link;

-DRS Origin Story Part 1
-DRS Origin Story Part 2

Which was a part of a Live Questions and Answer Session;

Most of the transcription is accurate, and I may have added some ‘things’ or words or something, so this is not to be mistaken as an official copy or legal or whatever. Just treat it as a creative review and use it for educational purposes and blah blah blah.

Small breaks/pauses are denoted by a single dash/hyphen/tac –

Recording time skips are noted by double dash/hyphen/tac —

I had a small Jest with brackets; [ ]

And this is me guessing the missing or inaudible words (**word**?)

The Transcription;

I have some screenshots of some erroneous information that the user was putting out about Direct Registration, that concerns me that there’s false and inaccurate, and misleading information being put out.

I understand that people have questions but I received this really thoughtful question from a user that I follow. And they asked me some really detailed questions about direct registration. So I’m taking this time to clarify the origins and the functioning of direct registration.

As a matter of fact, I worked on the system specifications, and I wrote the procedures plus all of the marketing materials at DTC when Direct Registration was introduced. So the acronym that I coined DWAC or Direct Withdrawal Custodian, is still in use today. Although they say Deposits/Withdrawal Custodian.

When we created it, you could own shares from your broker into your name. On the books of the company, you couldn’t come back the other way. Right. So it was a withdrawal-like custodian deposit.

They have altered the name but they kept the acronym DWAC or D-WAC. So, yeah, you knew I wrote the book. And now you know I wrote the specs for DRS.

While I was cleaning out some paper files last month, and I decided not to toss an old unpublished article I wrote decades ago called “Direct Registration for the 90’s”.

I had hoped this would have a video and I’d be showing you the copy. This actually, the version I have was printed on the dot matrix printer so you can tell -that- will give you some idea of how old that piece is.

But I wrote it for an audience of broker-dealers. And I think that I did that because DTC was having a hard time selling direct registration to its (partners?) who are banks and brokers.

The article describes industry efforts to create a system that would allow issuers and shareholders to maintain a relationship while providing investors access to capital market liquidity.

Right, Liquidity, that’s the big issue. “Can I sell my shares?”

So in the essay, I describe some of the issues that remain important today, for example, stock lending from customer accounts, inhibited shareholder communication for proxy voting. Those are things that we talked about this year, that — were talked about in the 80’s and 90’s.

So this idea about Direct Registration is going to have different names across time.

I’m going to be talking about the origins; this is before what you know today as “Direct Registration” became an option. But I’ll always call it DRS or Direct Registration, because that’s the one that’s stuck, and it’s also the one that I used, because, that’s what I know it as. And that’s what DTCC calls it now and that’s what we called it when we created it in the 90’s.

Each company creates and offers a direct registration program for its investors under a contract with its transfer agent.

Therefore, each one could potentially have a different name. Some of them are called a direct purchase program, direct purchase plan -and I’ve just seen a variety of names out there. But to keep it simple, I’ll just say DRS (Director Registration), regardless of what time it came out.

Also, I’m going to get through this in about 30 minutes, more or less, and then that’ll have some time left over to answer some of the questions I’ve been collecting.

If you’re posting new questions to Twitter, using @susannetrimbath, it’ll go to notifications and mentions, but it’s gotten really messy in there with alot -with some side discussions. And I had hoped to be able to keep that screen open with Twitter where I could look at my notifications and take your questions on the fly. But I am not going to be able to do that. I did go back and capture and have them captured for some time for most of the questions. So — I had to shut down that screen. It’s too much of a distraction because it keeps scrolling and there’s not really questions that I can answer in there. So — if you want to post another question, we’ll try to pick it up later, post it as a reply or as a mention to @susannetrimbath. And then I have already been asked by Josh Hamilton of chatter and the ball house to do follow-up sessions.

This is the origin story, the rest of it. — This isn’t about, “Should I today or should I not go into direct registration?” That’s not what today is about.

Today is about how we got to where we are.

At another time we can try to answer some of the other type of more direct questions, – about “what should I do now”.

Disclaimer, all that blah, blah, blah. I’m not a financial adviser. Nothing I say should be regarded as advice. I taught finance and economics for a long time, graduate and undergraduate. So you should take this as you would a college lecture. It’s not much more than that.

So let’s start at the beginning.

About 1970, the financial services industry flirted with this idea of individual book-entry ownership for corporate securities; it was already available for municipal bonds because, by the 90’s, the bonds were coming up as book-entry only. And also your US Treasuries are available for book-entry only. So — that option remained there. But there was a 1990’s proposal that was supported by the securities transfer Association, that would let shareholders have book-entry accounts on the records of issuers.

So that’s the shareholder register. That’s the important term, that’s where you want to be.
That’s what Direct Registration gets you.

The main advantage of book-entry is that the shareholder wouldn’t have to keep certificates in a safe deposit box if they wanted to be registered owners. They also would not have to (say) If they want to sell their shares, they would not have to take that certificate out of the safe deposit box at the bank, take it somewhere, get the signature guarantee, go to their broker’s office, the broker sends it to DTC, DTC sends it… You get the idea. It was a long process.

So – in this case, you would just be able to move things electronically. And in the 90’s, you can imagine that – the systems to do this are coming into place. There weren’t a lot of disadvantages, at least not for long-term shareholders.

There are disadvantages that accrue to the brokers; the broker-dealer segment of the industry.

So once a shareholder, also known as the broker’s customer, is on the books of a company as a – registered shareholder, the broker pretty much loses that customer, at least for that security, for that stock, whatever it is.

So there’s no more custody or account maintenance fees, no more commissions, no more overnight earnings on the money that they hold in your account, etc. So the brokers and the depositories initially fought the idea of Direct Registration on the grounds that any shareholder in the program would have limited access to securities markets.

You see this today, a lot of people are still posting that as a downside; absolutely true, that’s a downside, it’s not instantaneous. The argument was that the best way for individuals to have free access to the securities market was to leave their shares with –(the Brokers?), the brokers then would deposit those shares to the depository, and that would leave a trail of custody fees, most of which are ultimately borne by the shareholder investor, whether or not you see a line-item on your account statement, saying that you’ve been charged X amount for custody fees.

It also left a trail of nominee names between shareholders and issuers.

This is one of the main reasons that the issuers wanted it put in place. The insertion of nominee names between corporations and shareholders is a recurring and problematic topic in the US capital markets.

But back in 1971, there was a group called “the Banking And Securities Industry Committee (BASIC)“. You may have heard Carl Hagberg mention that in some of the AMA’s that he’s done and interviews.

They (BASIC) argued against creating what then would be called a “Transfer Agent Depository”. That would have given us direct registration in 1971. Instead, we got the Depository Trust Company (DTC). We got the Central Securities Depositories, the national depository system.

But TAD the Transfer Agent Depository is the earliest known reference to Direct Registration. Since then the idea has surfaced multiple times in the first 10 years of DTC’s existence, the transfer agents and the issuers have tried to come back to that idea to have them be the ones that hold the records, right, because the issuer knows how many shares there are. The transfer agent is required to keep track of that. But we didn’t get that, we got this other thing called the Depository Trust Company.

There were even references in the late 80’s to something from Morgan Stanley called a Shareholder Plus Program for issuers. Where Morgan, for the companies that they were transferring for, was going to try to put together this Direct Registration system.

It didn’t really go anywhere, but just to give you the background. So this idea finally got implemented in about ’99. A group of 30 was formed. If you don’t know what the group of 30 is, 30 is 30 countries plus-plus — because they started with 30, but eventually had many more — that wanted to align trade clearing and settlement processes and procedures across borders. So in the 90’s — hard to believe but this is true — if someone in France wanted to trade US security with someone in the UK, they would actually be sending faxes back and forth to each other to make this happen. This was before all the stuff got automated.

So the G30 started discussions about aligning through clearing and settlement processes and procedures across borders. And they started discussions about eliminating certificates by forcing every shareholder to leave his shares with the brokers for a more effective settlement system.

Well, some people saw this as the only way to get to T+3, of course, certificates were by them already involved in less than 10% of all trades. But that’s never really stopped the industry from complaining about certificates, they still complain about it.

But each time a new shareholder communication act was proposed or passed in the law, a new system for direct individual book-entry registration would come to the table. And in 1986, it was called the Direct Registration System for the first time, and even though it was not implemented that time, that’s the name that appears (to have stuck).

So after that time, then the transfer agents who made a living out of issuing certificates and maintaining shareholder records…

Right, so the transfer agent is hired by the company to keep track of who owns their shares, that transfer agent would of course charge a monthly fee to the company, they might charge a per transfer fee, per certificate fee, etc.

As they (Brokers?) saw certificates being mandated out of existence, that was their revenue stream diminishing.

And it had already started to diminish 20 years before that, in the 70’s, when the depository started immobilization. So this is holding all certificates and when brokers move shares electronically, no paper changes hands, they want to ‘mobilize the paper’, the certificates.

But the transfer agents took issue with the elimination certificates and they used that one aspect of the G30 discourse to provoke a debate on direct registration. So the transfer agents led a very organized effort in 1991 to exert pressure on legislators and regulators. Now keep in mind that the 1980’s was the decade of merger mania. It was a time when companies wanted to keep their shareholders close.

People at that time, like Carl Icahn, for example, would get one share of stock, request a list of all the shareholders, and then contact all of them and encourage them to vote in favor of a merger that he wanted.

So the more shareholders that were directly registered with the corporation, the easier it was for the corporation to directly contact those shareholders and say, “Hey, here’s what’s going on with the company, here’s the proposal that’s been forward, here’s what we think is in everyone’s best interest.”

So that was in the 80’s and then the transfer agents and the issuers see this coming up, where they’re going to say, “okay, all shares are held at brokers, no more individual shareholders”.

And that’s what got them motivated to begin to organize themselves in a way that they could see something change.

So with the support of software systems, vendors plus an organization known as the national association of individual investors, they stirred up an organized individuals, Individual investors, by talking about;

1. institutional ownership taking over corporate America,

2. small investors being pushed out of the market by high priced broker services.

Because at that time, I remember, in the 80’s and 90’s, you paid… I think, when I first started, it was like $35 per trade, something like that. So if you’re buying a $35 stock, a $35 commission is pretty high. So small investors put price brokerage services, and

then shady brokers making off with securities left in their custody.

Does that sound familiar? ಠ_ಠ

You Know?

Some of these arguments haven’t changed.

So the transfer agents distributed form letters to be sent to Congress, SEC, group of 30 members. And they accused the brokerage sector of profiting from stock lending based on customer accounts, inhibiting shareholder communications during proxy season, during the (voting?) season.

Sound familiar? ಠ__ಠ

So there’s nothing new under the sun.

So in the 90’s, the STA supported direct registration by focusing on the operative words in the group of 30 proposals; the mobilization and book-entry securities.

So while the group of 30 didn’t deny investors the right to hold a piece of paper evidencing their ownership, they were making it more difficult to get stock certificates. In fact, the G30 did not want to permit banks or brokers to request certificates on behalf of investors. The investor would only get a transaction advice regardless of how they ask for their shares to be withdrawn, and then the individual investor would have to contact the transfer agent that’s on call (or write?) to ask for a certificate.

So they want to make it really hard. Well, at least initially, Americans rejected the cashless society, but American investors were flocked to book-entry ownership for registered equity securities. I mean Direct Registration took off in ways that no one could have imagined at that time.

Some companies already had what they call an Enhanced Dividend Reinvestment Program. So the initial nature of this would be like this all kind of really originally came out of employee stock ownership programs because those were basically book-entry only and dividend reinvestment programs (DRIP), which also were already in existence.

But this took it one step further; the enhanced dividend reinvestment program would have optional cash purchases for anyone that was in the Dividend Reinvestment Program. The requirement to have dividend reinvestment is broken now. You don’t have to do that in this origin story. You were required to have dividend reinvestment in order to have the book-entry account.

So when the article appeared in a couple of investment newsletters mentioning the companies had added this cash investment option to their dividend reinvestment programs, at that time it was Texaco, Chevron, a company called Union Electric -I’m not even sure if they are still in existence.

Individual investors signed up by the 1000’s. One company mentioned in an article that they received 10’s of 1000’s of requests for information; one company 10’s of 1000’s of requests. And that a high percentage of those applications came back with checks attached.

The people not only wanted to start their program, but they also wanted to start adding money to it.

No certificates were issued to those new shareholders. Book-entry accounts were opened, transaction statements were mailed. Another company received so many calls for information that they had to set up a voicemail recorder just to take names and addresses of people asking for information.

So the brokers and depositories did not think it would happen. They — just didn’t think that the transfer agent industry would be able to organize anything on such a grand scale. So they still didn’t think that individual investors would be interested.

But Direct Registration arrived and it’s with us today on a grand scale. There are 1000’s of companies… Well, I was going to say there are 1000’s of companies that offer it but I just saw today — I hadn’t noticed it before -in 2012 — NASDAQ put in a requirement that any (publicly) listed company (on NASDAQ) must be able to work with direct registration.

So pretty much every public company has this program. All of the transfer agents for all of the public companies are offering it through DTC because of course that’s where the [Inaudible 17:35].

Okay. When it was first proposed, this stumbling block was really how to get the customer shares from the issuer to the broker in order to make a trade settlement, if you had to go with – put in the sell order. So the only solution at that time was to get a certificate and move it around. There didn’t seem to be a way to do that, at that time.

So in 91, this was still the argument being used against Direct Registration that it would never work. But by 91, the transfer agents and the issuers were ready. So they would sell the customer shares upon request eliminating the need for investors to go back to a broker for that transaction.

That was a real turning point in making it feasible for us to offer the program and for individual investors to be able to get into the program.


The issuers could do this at a massively discounted commission.

Remember at that time, in the 90s, you might have paid $35 for a trade. I think Charles Schwab was the first one to come out as a discount broker at $5 a trade, now it’s free trade.

But how free is that? ಠ________ಠ

A discussion for another time.

But anyway, instead of paying $35 to a broker to sell your shares… —

When I first got into Direct Registration, full disclosure, I had two stocks, and each of them did a spin-off, so I now have four stocks in Direct Registration. When I first started, they would charge you to sell your shares, but not to buy your shares.

So if I bought my shares, there was no commission to me. If they sold my shares for me, they would charge me, I don’t know, $1, or something or some flat fee that they would charge. Because the point was for the issuer to encourage its investors to come closer to the company, and to discourage you from leaving. The way that they do this is that they combine many shareholders’ sell orders into one transaction so that the portion of the commission borne by any individual investor would be very small. And that’s how they were able to take your sell orders at a very discounted rate.

Let me just back up for a minute from the storyline and talk about why issuers want to do this. Right?

So issuers want to do this for a couple of reasons.

1. which I’ve really talked about a lot here, and that is, that they can bring their investors closer to them. So they have your name, your address, and they’re able to communicate with you directly about what’s going on with the company. They can send you your voting information, you can send your votes directly to them. So there’s a lot going on there.

But another reason is that so much was founded is (its?) an easy way to raise capital. If you find the SEC documents — and I’ll talk about this a little bit later — where the company creates their direct registration program, and all of them have to file for that, you’ll see that they’re registering a certain number of shares to be part of that program.

When they’re doing that, when they sell shares to you they’re selling your original issue shares right out of that registration, so that the company has direct access to that capital.

They’re not paying underwriting fees, they’re not paying commissions to market makers, those shares are coming straight out. So that was another reason why some companies decided to do this on their own.

In addition to this, — connecting investor and investee. Let’s get that company, that you’re investing in wants to be close to you because, honestly, most issuers recognize that their investors, their shareholders are their employees, their customers, the people who live in houses down the street from their distribution points, etc. So they are interested, smart companies are interested in that.

All right, so back to the storyline right.

So Direct Registration, where they figure out how to do all the processing in and out. When shareholders and investors get wind of it, they flocked to it, 1000’s of people signing up. 10,000 people from one company are signing up — to purchase their shares directly from the company.

But what happened was that by not cooperating to find an automated solution to the sell-side of individual book-entry ownership, the brokerage sector, in essence, cut themselves out of the loop.

So their whole argument, the central depository, and the banks and brokers’ argument was;

“You won’t be able to sell your shares without getting a certificate. And it’s going to take like, you know, six weeks or whatever.”

But once the issuers and the transfer agents who worked out the sell-side to be automated…– Had the brokers looked for a cooperative solution, they could have still been part of that process.

The cumbersome method of moving stock certificates to sell a share would still be available if you want to do that through the broker, but with the issuer offering — a sell feature in the direct registration program, at that time at little or no cost to shareholders, very few investors are going to take that route no matter how loyal they are to that broker.

T+3 settlement was… Remember when this all started, settlement was T+5, then it moved to T+3. —

At the time that this was coming out T+3 is an initiative. It’s something that people were talking about, and they were saying that if you have electronic ownership, we’ll never get to T+3. So both questions were and are no longer relevant.

Individual investors are directly registered on the issuers’ books. All their trades are settled through the program’s trustee, usually a bank with a broker arm. So it’s usually the transfer agents.

Although, now increasingly, you have these standalone professional transfer agents who are not associated with banks or brokers. Dividend payments, proxy cards go directly to shareholders, they don’t go through broker-dealers.

So it would be impossible, then or now, to spell out a specific scenario for how anyone does his program. IBM, Exxon, Houston industries, Ohio Edison -they were some of the first to offer direct registration in 1993. Each company, as I said, the program is run by the transfer agent under contract from the issuer.

I suspect that each individual transfer agent probably has a template for the services they offer in the program. So they may be slightly different from agent to agent. I imagine some companies are going to want to have special services attached to their program, they set their own fees, etc.

But in general, these are some of the most common features;

1. The issuer stops printing new certificates and starts sending out transaction devices for book-entry shareholder accounts. That’s number one.

You can, in most cases, still get a certificate. I think I saw some people ask questions about -like- they wanted it for a souvenir-type thing. — Certificates have not been outlawed.

Although, if certain parties have their way they would be allowed, but they’re not. They’re still available. Some companies opt to issue book-entry only. So for example, you could not get a certificate to represent a treasury security.

In fact, I wanted to buy a US Treasury savings bond for my neighbor’s son for his birthday. And it turns out, they don’t print those anymore. It’s all book-entry. So the securities are just not available and certificates. But by and large, I think you still can. The idea is, though, that once you’re on the shareholder records, the certificate is really redundant at that point.

2. Shareholders can make optional cash purchases of shares directly through the issuer with little or no commission fees, including buying your first share from them.

Direct registration participants can sell all or some of their shares through the issuer, generally at a minimal cost, like maybe $5 a transaction. But again, there’s no fixed way to say -like they all set their own prices. They can elect to receive all, or some, or none of their dividends in cash. You can have everything reinvested, half of it reinvested, none of it reinvested.

I don’t know what the default is. But for one of the spin-off companies that I ended up having shares in — the transfer agent was different from the original. And that transfer agent has a default of sending me a check for dividends rather than reinvesting.

So you want to look at what the default was if you want them or don’t want them.

Myself, personally, I kind of let it build up. That’s called share price averaging.

So the fifth common feature, account statements will be sent out for each transaction, but no less than once a year. So if I don’t do anything, if I don’t put any new money in or take any shares out of my direct registration account, I get a statement every time a dividend is issued, because I’m in dividend reinvestment -so they’re sending me a new statement to show me how many new shares they bought for me.

But if I were trading in that account or buying and selling shares in my direct registration account, I would be getting statements more often. Buy and sell orders will be executed no less frequently than once every five business days. Now that’s probably still on the books.

The last one I looked at was five days. But again, this is all regulated by the Securities Exchange Commission. Every company has their own program. — I just did a quick Google search. And I found Wells Fargo’s application for their corporate stock, not as a broker, but as an agent, as a corporation.

They filed in 2004 for a direct registration program, to offer one. Southwest gas holdings filed in 2017. I just did a quick Google search.

So if you’re interested in the details of any particular program, I would say;

first of all, find out who the company’s transfer agent is and look at that transfer agent’s site.

Number two, you can go to the company’s corporate site. So if you go to, if you scroll all the way to the bottom, it’ll say they are corporate. The first time they bring it up, they have phones and whatever. But if you want to get to the corporate thing, you will go to the bottom and then you look for Investor Relations.

And if you can’t find it there, then look on the SEC’s website and see if you can find the original filing documents. The advantage of the original filing document is it will tell you if they have filed shares that they want to sell directly out of treasury, out of their own inventory, not open market purchases, but they will sell directly. That might tell you something interesting, too.

All right. So direct registration is here, accepted by investors, it’s functional, all the kinks have been worked out. So to figure out what that means for a broker, if any of them are listening here, or you as an individual investor, you need to figure out;

“what kind of a brokerage customer are you?”

So I’m assuming that anyone here who is investing in stocks has at least started. If you’re not still there, you at least started with a brokerage account. It’s not right for every individual investor.

So they’re basically three types of individual investors.

1. intermediate trader who plays the market prices for gain, aka day traders, like home day traders. I don’t know if they still use that.

2. passive investors, for example, your initial stock holdings came from an inheritance, you’re not interested in increasing or decreasing the position, you’re collecting dividends, for example. And then

3. long-term investors.

So if you’re one of the first two, you’re not interested in Direct Registration. It does not offer immediate buy and sell capabilities.

You can’t do stock price orders, everything’s just at the market, really, and on the day, like within the five days before the trade is executed. So it’s not really for that type of person.

Most of them also have this minimum buy-sell frequency of five days, that’s the minimum if they get a lot of orders and they do it more often. It depends. They’re trying to get — the hope is that the service provider is trying to get the best price on the overall transaction.

So if they’re getting just a trickle of orders, and they’ve only got orders for 10 shares, and five days have passed, okay, they’re required by their filing, they’re required to do it in five days to execute the trade, the buyer to sell. But if they’re coming in every day, and they’re getting 10’s of 1000’s, they may even trade every day, it just depends.

But all they can tell you is what’s the minimum frequency.

They’re not all identical. I can’t say that often enough.

So for an intermediate trader, a lot can happen to the share price in five days. So direct access to the markets is a better option than DRS. If you’re a day trader, that level of access is only possible if you have a nominee account held with a brokerage firm, all your shares are at DTC, and everything’s done electronically.

Passive investors, like those who inherited shares of IBM, they tend to own either just a few shares or shares in only a few companies and they -issuers are not likely to target them for a buyback — or are more likely to do that program where they could take in a lot of shares with one trade.

But they’re not interested in being able to buy and sell shares or buy more shares with a cash contribution. So they’re generally not interested in that.

Direct registration offers advantages to the long-term investor.

So a broker’s customer base would be affected. If they cater to long-term investors. Long-term investors can take advantage of the share price averaging by making frequent small purchases. A lot of these programs — I haven’t done this myself — offer $25 a month direct withdrawal. They take $25 out of your checking account every month and buy you shares, fractional shares, whatever. That helps you average out the cost, the price of the shares that you’re buying.

If you’re put off by, at that time, rising commission and account maintenance, then you’re a good candidate for DRS. A retail brokerage firm that’s interested in retaining those clients would, in fact, have to seriously look at their fee structure.

AND the free trade brokerage accounts gained momentum around the same time that direct registration became popular with issuers and investors. So that was motivating them to try to get their own costs down and find other revenue streams rather than charging new fees.

So direct registration could put brokerage clients at more risk than they realize.

The greatest danger is that the individual will invest too much money in an inappropriate security like ‘putting all your eggs in one basket’ kind of thing.

So it’s great if you’re an active informed investor, you like to watch and follow financial news networks, you’re looking at Federal Reserve publications, you’re following the economy. That’s the type of individual that can do well with direct registration.

The investment decisions have to be made without the benefit of the personal financial professionals.

I guess if you’re using an online trading account, you’re probably not getting one on one advice.
[ooh, sick burn]

But some people use financial advisors where they sit down and talk with someone about it.

But nothing really stops any investor from subscribing to the newsletters offered by lots of financial organizations. Their websites have a lot of information. If you have access to any public library in the United States, most of them subscribe to Bloomberg markets, Dow Theory forecast, like there’s just a lot of newsletters that you might otherwise have to pay the brokerage firm or have an account there to get access to. Some of them are actually published and made available in public libraries. So you can get access to good information.

It is important to note that the securities law prohibits solicitation by issuers to get you into the direct registration programs.

The SEC looks at the Direct Purchase Plan as if it were a solicitation or to purchase our shares -because Direct Registration now has this piece in it that says,

“Send us money and we’ll put shares in your account for you”

So they’re not allowed to do that.

In fact, I know a guy that works in ComputerShare (he’s?) high up, and I asked him if he would do an interview about Direct Registration. Just because there are so many questions.

Everybody wants to know, “What is it? How does it work? Is it good, is it bad”.

But for the transfer agent, this would be a conflict of interest to talk about one program over another. So this guy works at Computer Share and Computer Share has -I don’t know how many- 1000’s of companies, all of which offer Direct Registration programs in one form or another.

So he couldn’t come out and talk about it because it might be perceived as favoring one client over another.

The companies are prohibited by the SEC from coming out and soliciting it.

The Direct Registration program is run by the transfer agent under contract with the issuer.

The literature that you can get is going to be geared towards informing, although it can be persuasive, they can try to tell you the pros and cons. But they’re prohibited from coming right out and saying,

“Hey, join my direct registration program. Become a registered holder. We’d love to hear from you.”

That sort of thing. So just kind of keep that in mind as you’re looking at what’s being said about it and

why you’re not hearing from the transfer agents and the issuers on this issue.

I’m talking about the origin story because I was there at the origin. So I can tell you what I know about how this all came about. Well, for the brokers that handled open market trades for the issuers in connection with these reinvestment programs, that helped them to get additional work from that.

But generally speaking, your broker is not going to tell you about Direct Registration because it is not in their best interest to do this.

Does DTCC support it? Yes, because they hate certificates.

Do the broker-dealers support it? Not so much because, again, everyone’s looking out for their own best interest.

So that’s the origin story for Direct Registration.

Hopefully, I met the rules. I actually looked up superhero origin stories to find out if there are any requirements. I found them posted in 2008.

1. it must be relatable. So I think the Direct Registration story is relatable. There are so many questions. And there is so much bad information.

(2.) You have to give the superhero a chance to prove itself. I think that Direct Registration has struggled to come for 50 years. Remember, they’ve been trying to get this done since 1970.

3. tie the origin story to the villain’s plot. The brokers fought and continued to fight, having this in place. And in fact, the brokers had the opportunity at one point to sort of join in the loop and say, “Let us all work together to automate this process”, and instead fought against it. And then, let’s just say, it got cut out. . .

And then, don’t make the background too exceptional. And I think I did that. The Direct Registration actually fed off of the creation of DTCC. Remember there was a transfer agent depository -It was proposed before -or- simultaneously with DTC being proposed.

And then finally, the final requirement is to give us a chance for a happy ending.

And it’s not impossible that at a large-scale Direct Registration would disclose phantoms. It’s not impossible.

How likely is it? I can’t say, but it’s certainly

not impossible.

Some key words,

I did bold certain words, and made them stick out, so here is a collection of things I think are important;

Right, Liquidity, that’s the big issue. “Can I sell my shares?”

That’s always a good question. Can you buy, sell, and are your securities -well- secure?

Each company creates and offers a direct registration program for its investors under a contract with its transfer agent. So that’s the shareholder register. That’s the important term, that’s where you want to be. That’s what Direct Registration gets you.

If you like it then put a ring your name on it.

There are disadvantages that accrue to the brokers; the broker-dealer segment of the industry. So the brokers and the depositories initially fought the idea of Direct Registration on the grounds that any shareholder in the program would have limited access to securities markets. that would leave a trail of custody fees, most of which are ultimately borne by the shareholder investor. It also left a trail of nominee names between shareholders and issuers.

As they (Brokers?) saw certificates being mandated out of existence, that was their revenue stream diminishing.

Brokers are basically glorified middlemen, that’s the whole point of arbitrage or ‘brokering’, literally their job is middlemen. And they need a product to be in-between the buyer and seller of, or at least issuing holding and other fees. So it’s kind of a conflict of interest for them to reduce shares out of existence, because that means they wouldn’t have a product to -sort of- peddle. It’s like a charity curing their charitable cause, they would essentially put themselves out of business.

shady brokers making off with securities left in their custody.

Does that sound familiar? ಠ_ಠ

You Know?

Some of these arguments haven’t changed.

The brokerage sector was accused of profiting from stock lending based on customer accounts, inhibiting shareholder communications during proxy season, during the voting season. You know, messing with Share Holders and also rigging elections for companies. . .

Sound familiar? ಠ__ಠ

So there’s nothing new under the sun.

And here’s a tip,

Direct registration offers advantages to the long-term investor.

And another,

Direct registration could put brokerage clients at more risk than they realize.

And the last piece of info;

It is important to note that the securities law prohibits solicitation by issuers to get you into the direct registration programs. The companies are prohibited by the SEC from coming out and soliciting it. The Direct Registration program is run by the transfer agent under contract with the issuer.

And because of these regulations, that’s why you’re not hearing from the transfer agents and the issuers on this issue.

Anyways, a good take away from all of this,

Is that if you’re not Directly Registered on your security,

Then you don’t own your security,

It’s registered under the Street name, the Brokerages, the Cede and Co’s of the world, etc.

It’s like cash stored at a bank, the bank owes you that cash back, but they’ll use it(your cash stored) for collateral and other loans. Like yes, you technically own it, but also you more or less are ‘owed’ it rather tham ‘own it’.

So if you really care about being the one to own your securities for a long while, and not looking for a scalping quick-buck, then perhaps you should pay that extra vig to put your name on it.

Or if you care about the democratic process of voting, and you (Heavens Forbid) actually care about the company you are invested in, then you should probably DRS it.


DRS it

In Closing

Notice how this post doesn’t have (or at least little to none) any deprecative, dry, dark, crude, rude, profane, abysmal, depressing, or any of the sort of humor?

That’s because I have respect for the good Doctor.

Much more respect than I oft find for mineself as I jest, So please do support her.

Regardless, I wouldn’t bet on you supporting her, because you don’t look like a safe bet.

Have a bit of reverse psychology, for a Not Safe Bet.

I bet you won’t.


*Not Valid Financial, Legal, Life, or Any Advice and all that blah, blah, blah

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