» Stock Trading Strategies and Systems » Holding Your Securities: Physical Certificate

Holding Your Securities: Physical Certificate

When it comes to holding securities individual investors have up to three choices:

  • Physical Certificate - In this case the security is registered in the investor's name on the issuer's books, and the investor receives a hard copy stock or bond certificate stating the ownership of the security.
  • Street Name Registration - This option does not provide the investor with a certificate. The security gets registered in the name of the brokerage firm of the investor on the issuer's books. Thus, the brokerage firm holds the security for the investor in "book-entry" form by keeping a record in its books that the investor owns that particular security.
  • Direct Registration - With this option the security is registered on the issuer's books in the investor's name, and either the company or its transfer agent holds the security for the investor in a book-entry form.

Physical Certificate - Advantages and Disadvantages

When you buy a security as an individual investor, you may request to have the actual stock or bond certificates. Of course, issuing a paper certificate may require the payment of nominal fee for the added expense.

In case you lose your certificate or it has been stolen or destroyed it may be really difficult to prove that you have once owned it. Additionally, typically you will be charged a fee if a lost or stolen stock certificate needs to be replaced. Therefore, it is very important to safeguard your certificates till the moment you sell or transfer your securities.

Here are some of the advantages of choosing the option to hold a physical certificate:

  • When you hold a physical certificate the company will know how to reach you and you will receive company reports and other information directly.
  • If you need to pledge your securities as collateral for a loan, it may be easier to get it if you hold a physical certificate.

The disadvantages of holding a physical certificate include:

  • Losing your certificate may cost you a fee for a replacement certificate.
  • In case you want to sell your stock it may take more time to execute the sale since you will have to send your certificate to the broker or the company's transfer agent.
  • In case you move, you will have to notify your company and update your contact information to make sure that you continue to receive all mailings.
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