In my earlier post, I discussed about Share Registrar and this article will focus on how investor’s shares are handled in share issuer’s book. Just assume, you are making your own company as public limited company and many people buying your shares and it is your right to know who is holding your shares. This article is to explain more about that.

What is Share transfer agent?

An agent who takes care of the investor’s name and details on behalf of the share issuer. Every organisation before issuing shares in the market (as of now just ignore IPO) they will appoint one Shares Registrar or transfer agent and their duty is to record the investors details like name and domicile details for each buy and sell of the shares. Registrar even conducts proxy voting, annual meetings etc. on behalf of the share issuer.

Main functions of the stock transfer agent is below

1. Maintain electronic repository to reflect the ownership of the shares
2. Act as intermediary for the company to corporate action pay outs and mailing agent of the company annual reports to investors.

Registrar will be called as different name in different countries. For example in US and Canada it is called as Stock Transfer agent, UK it is called as Share registry and in India as Registrar. Even though name differs in different regions, their responsibilities and functions remains the same. In today world there is no global registrar available but each and every market is dominated by different registrars because of the technology constraint. Why technology constraint? Registrar need to build interface with Central Security Depository of the each and every market to get owner details of the share and it will be very costly approach, even if none of the Share brokers in the world  are not connected to all the exchanges (mostly connected through regional brokers).

For Indian registrars kindly refer the below link in NSDL website

https://nsdl.co.in/related/regtrf.php

For US stock transfer agents, kindly refer the below link

http://www.stai.org/stamembers.php

In Singapore, BoardRoom is the share registrar for most of the stocks.

Above one explains the role of Registrars and their functions. Now let us see how the ownership recorded for citizens of the country and foreign investors. How your name is recorded in the Registrars books? If not how? How brokers keep your shares in their books? Is it safely kept?

This article will answer all the above questions.

To understand the registrar function we need to first know about how brokers kept your shares in the brokerage firm. It differs from country to country and in high level I analysed few countries so that it will be helpful for the people who read this.

Usually shares can be kept in below form in brokerage firm

1. Certified form or paper form.
2. Electronic form along with direct registration under your name in Central Securities Depository of the country.
3. Electronic form but it will be under nominee name which is your broker name. Your shares will be bundled with other clients of the broker and registered with CSD against the broker name. This process of registering against broker name with CSD will be called as Nominee account or Street name (varies from country to country).
4. Few institutional clients have account with broker and broker will register their shares with CSD as nominee but the difference is that their shares will not be mixed with other client holdings of the broker.

Most of the shares in today world will fall under category 2 & 3 of the above. Let me explain both categories so that we can understand how share owner names are registered in registrar books. 

Category 2:

Most of the residents of the country will fall under this category i.e.) they need to open account with CSD before they start trading and it again differs from country to country. Let me give few examples in different global markets so that it will be easy to understand.

Singapore market: In Singapore market, if citizens or foreigners residing in Singapore, they have to open CDP account with SGX then only they can start trading. You can have any number of brokerage accounts with different broker, but all must be linked to one CDP account. CDP is the CSD for Singapore market and while opening account in CDP you have to give your identification details so that whenever trade gets executed against your account, it will be recorded and registrar will get this information. Refer the below link for account opening form

https://www.dbs.com.sg/iwov-resources/pdf/forms/CDP_form.pdf

Indian market:

In Indian market there are two CSD’s namely NSDL and CSDL. NSDL is promoted by NSE and CSDL is promoted by BSE. If a citizen wants to invest in Indian equity market (later we can see about FII) then they have to open DEMAT account with anyone of the CSD and in India mostly it will be taken care by brokers (they are called as DA’s or Depository Agents). Based on the investors requirement DA’s will take care of the DEMAT account opening with Depository Participants (DP’s or CSD). Even you can open account with two DP’s and you can transfer the share from NSDL to CSDL and vice versa. DEMAT account will hold your shares in dematerialised form in the depository. When account is  opened, all the investor details will be recorded. Because all the investor details are recorded and when executed trades move to CSD ,it will be recorded against your name. In other words, this mechanism is called as Bullet proof because it is recorded against the individual name in CSD of the country.

UK market:

CREST is Central Securities depository for UK, Irish equities and other few international securities. CREST stands for Certificateless Registry for Electronic Shares Transfer. In UK if you want your shares to be registered against your name, then you can open account with CREST and all your holdings will be registered against your name in CREST (CSD). Else you can trade using nominee account and in this process, securities will not be registered against your name in CREST. Even CREST hold securities of other international markets, for example CREST is a member of DTC so that you can do cross border transfer which I will discuss in my next post.

US market:

DTCC (Depository Trust and Clearing Corporation) is the central security depository for all the US Exchanges. Same like UK if US citizen wants to hold their shares in their own name they can create an account in DTCC and they can hold shares against their name. Even holding shares via nominee account, US provides different service to register the shares under the investor’s name through different service called Direct Security Registration service and by using this service investors can bullet proof their name against the shares even it is bought via broker using nominee account (we can see this service in more detailed manner below)

As of now we saw about how different market register the share owner’s name. Now we can see in detailed manner how nominee accounts are handled.

Category 3:

Category 3 is the most used model especially in cross-border trading and it is widely accepted as well. Most of the investors wants to trade different markets using one account with broker. If the investor have multiple accounts with different broker, then it will be difficult for investor to manage the investment portfolio. Hence investor open an trading account with broker and broker using nominee account (Omnibus account) access different markets on behalf of the investors. Brokers will not hold those securities in their books and it will be parked under Custodians books (please refer my previous article about Custodians). Only drawback in this approach is that investor name will not be recorded in any of the exchanges which he/she bought/sold and in everywhere it will be under the nominee name, which is also called as Street name. One more drawback is that your assets will be bundled with other investor stocks and held with Custodians, for this reason we have to select trust-able/reliable broker who will take care of your holdings properly.

In US market it is different case, DTCC provides one alternate approach for investors to register the shares against their name in CSD using DRS (Direct Registration Service). Most of the US brokers will provide this service but they put charge for this process and actually behind the scene it is like transfer of Custodian service from broker’s custodian to DTCC custodian service. For more details on the DRS please refer the DTCC website below.

http://www.dtcc.com/asset-services/securities-processing/direct-registration-system.aspx

I am sure after reading this post you would have got some idea how share owners name are registered in registrar books and keep in mind if we buy through nominee account of the broker it will be parked under street name only.