What protects an investor’s interest in the case of terrorist sabotage, or act of war that destroys the electronic record of stock ownership?

By Steven Merkel AAA
A:

Currently, most stock ownership is done electronically thru the combined effort of the brokerage firms and the transfer agents representing the company that issues stock. When paper certificates are issued, the securities are registered in the investor's name by the transfer agent/corporation and physically held by an investor. Nowadays, in order to sell the stock position, the investor has to first deposit them into a brokerage account where they loose their physical status and become only electronic data. This electronic record of ownership administered by a brokerage house is called registration in the "Street Name". Trading of securities in the street name involves no physical delivery of securities. All brokers have to do on the client's behalf is to exchange electronic information between themselves and transfer agents. (See our FAQ on why securities are held in stree name to learn more)

The "Transfer Agents" record the name of each registered shareholder, his or her address, the number of shares owned, and sees that certificates presented for transfer are properly cancelled and new certificates are issued in the name of the new owner/street name. Before on-line brokers and personally directed accounts, holding a physical stock certificate was a necessity, now you need to specially request one directly from the company or thru your brokerage firm. However, this is seldom done due to the commissions/transaction costs, payment due to a corporation to actually print the certificate, and the extra hassle of the investor having to store the documents in a safe place. Plus, brokers cannot actually sell the securities until you surrender the certificate and they are registered in street name, which will cause delays if you are eager to sell quickly.

Since both the brokerage firm and the transfer agent retain electronic data pertaining to your stock shares held electronically, it is unlikely that both would be affected by data loss at the same moment. This gives you a solid backup between the two different entities while you should also be aware that most financial firms have adopted the daily disk backup system as part of the SEC's "Disaster Recovery and Business Continuity Plan" requirement established after the terrorist act of September 2001. You can also protect yourself by keeping trade confirmations and hard copy statements that prove your ownership. (Do you hold physical stock certificates that you inherited or found? Read Old Stock Certificates: Lost Treasure Or Wallpaper? to find out how to find out how much its worth)

RELATED FAQS

  1. Can I still set up an SEP if one of my employees refuses to participate?

    You can establish the SEP IRA, even if the employee refuses to participant. However, you would need to establish an IRA for ...
  2. I get multiple mailings to my house from companies that my spouse, children and I ...

    It's not uncommon for there to be more than one investment account holder in one household. If multiple members of your household ...
  3. I have a small business, and I'm considering setting up an SEP IRA. What are leased ...

    Generally, a leased employee is the employee of an outside organization from which you lease the employee's services. For ...
  4. If a company undergoes an acquisition can an employee withdraw 401(k) funds tax free?

    Although the participant may be eligible to withdraw the funds if a plan is terminated as a result of an acquisition or other ...
RELATED TERMS
  1. Strategic Management

    The management of an organization’s resources in order to achieve ...
  2. Performance Management

    The management of employees, departments, and organizations to ...
  3. Social Enterprise

    An organization that is directly involved in the sale of goods ...
  4. LLC Operating Agreement

    An LLC Operating Agreement is a document that customizes the ...
  5. Succession Planning

    A strategy for passing each key leadership role within a company ...
  6. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
comments powered by Disqus
Related Articles
  1. Analyzing Warren Buffett's 2013 Famous ...
    Economics

    Analyzing Warren Buffett's 2013 Famous ...

  2. The Economics of Hulu, Netflix, Redbox ...
    Investing News

    The Economics of Hulu, Netflix, Redbox ...

  3. War's Influence On Wall Street
    Bonds & Fixed Income

    War's Influence On Wall Street

  4. How To Become A Corporate Board Member ...
    Personal Finance

    How To Become A Corporate Board Member ...

  5. The Basics Of Outstanding Shares And ...
    Investing Basics

    The Basics Of Outstanding Shares And ...

Trading Center