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The securities industry adopted a new T+3 mandate in June, 1995.
When it comes to the impact of T+3, you do have a choice.
When you know the ins and outs, the pros and cons, and
the pluses and minuses involved in any decision,
you'll make the best decision.
Please take a few minutes to learn the differences between
direct and indirect ownership.
Doing so will help you choose and receive the form of ownership
best suited for you and your investment objectives.
An informed choice is always a better choice.
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What is T+3?
The United States securities market is moving to a shorter settlement period for all retail broker-dealer transactions.Currently, the settlement of most stock transactions generally occurs within five business days, or seven calendar days, after the trade is executed.
However, as of June 1995, most stock purchase and sale transactions you conduct must be settled by the third business day after the trade, or T+3 as it is generally called.
What T+3 could mean to you.
- Two forms of stock ownership will continue to be available under T+3. You can own stock in your own name or you can have your bank or broker hold stock on account in your behalf.
- Two basic alternatives are available to conduct both stock purchase and sale transactions: through a retail broker-dealer or through corporate issuers who offer dividend reinvestment or shareholder service plans. Both alternatives will also continue to be available to you after the T+3 requirement takes effect.
- If you conduct stock transfer transactions through a dividend reinvestment plan, employee stock purchase plan or shareholder services programs offered by the company, your transactions already meet the T+3 mandate.
- If you conduct stock transactions through a bank or retail brokerage firm, you may face decisions in the coming weeks and months concerning the form of ownership that you prefer.
- In June 1995, T+3 became fact. It's your right to know all about your decision options.
Direct ownership is the form of ownership whereby your full name and address are "registered" or recorded "on the books" of the corporate issuer. You're known to the issuer; they know you're an owner of the company.
Direct ownership of a stock may be in the form of a traditional stock certificate issued in your name or may be confirmed by the issuer's statement to you reflecting ownership in book-entry form such as in a dividend reinvestment plan 9or employee stock purchase plan.
How direct ownership works:
- You are a true owner of the company. Ownership is recorded "on the books" of the issuer. In every circumstance, ownership records are subject to the issuer's full control and oversight. If you purchase stock through a bank or broker, be sure to request "register and ship" with each transaction to ensure that you become a direct owner.
- Directly owned shares are truly portable. You may sell your shares through any broker regardless of where they were purchased. Portability can often provide extra leverage when negotiating brokerage fees.
- Dividend payments are sent directly to you. If enrolled in the company's shareholder service program, you may be able to choose to have your dividends reinvested in additional shares of stock. If you prefer a dividend check, the check is sent directly to you and will generally reach you by the dividend payable date. Many companies also allow your dividends to be forwarded electronically to your bank account.
- Dividend reinvestment plans, shareholder stock purchase plans, and similar share ownership programs offered by corporate issuers generally allow you to keep all your holdings of shares in book-entry form, recorded on the books of the issuer. you may deposit certificates you hold, sell shares, purchase additional shares, or arrange for gifts as well as a transfer to another person. You retain the right to request a physical certificate if you want one. A certificate will be sent to you promptly at no additional cost to you.
- Annual reports, proxy materials, and other mailings are sent directly to you. You will generally receive materials earlier than if they were sent to you via a broker.
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Indirect ownership is the form of ownership wherein you hold a security interest in an account maintained at a bank or brokerage firm. Such accounts are not subject to any oversight or control by the issuer of the stock. Shares are normally held in the firm's name or in a name the firm designates, rather than in your name.
Indirect ownership is generally referred to as "street-name" ownership.
How indirect ownership works:
- A certificate is not produced or registered in your name and the issuing company does not know you are a shareholder.
- Street-name ownership may reduce some paperwork involved with buying and selling securities, because shares are held "on account" with the brokerage firm. Delivery of certificates to you is never an issue because certificates are never produced and registered in your name.
- You may quality to maintain a margin account, time execution orders, and be able to place limit orders under street-name ownership.
- Street-name holders usually receive monthly or quarterly account statements that itemize securities and cash on deposit, the current value of each security and the value of their street-name portfolio.
- Dividend and interest payments are distributed through the brokerage firm. Mailings, such as annual reports and proxy materials, are generally forwarded to street-name owners through the brokerage firm.
- Under street-name ownership, your name is never on the records of the issuing company. Your claim to ownership is only through your broker.
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Many brokerage firms are changing the way they conduct transactions on behalf of their retail customers. Each firm must comply with the T+3 mandate, but each is independently responsible for instituting its own practices and procedures.
You should be aware of the changes and allow yourself sufficient time for delivery of funds or securities within the new time frames and procedures.
Things to keep in mind:
- Some firms will require that you have funds on deposit with them by the third business day after a purchase has been made. Other firms may execute your trade only after you have deposited funds with them.
- When you sell stock, you may be required to deliver stock to your broker within three business days after the trade. Other firms may not execute your trade until after they have received the stock certificates from you.
- The T+3 mandate provides flexibility. Be aware that the rule makes the provision that you and your broker can mutually agree to a different settlement period at the time of the transaction under some circumstances. If you find yourself in a circumstance that requires a different settlement period for a specific transaction, you should ask your broker about that provision at the time the order is placed.
- You should also be aware that some retail firms are instituting additional fees on transactions when the customer requests a stock certificate. It may be possible to have these "certificate" fees waived if you insist. The issuing corporation or its transfer agent does not charge you, or your broker, for a certificate. In addition, some brokers charge account maintenance and certificate safekeeping fees.
- Some shareholders may believe that their broker is holding a certificate in safekeeping for them, registered in their name. However, if you receive brokerage statements that show share position and receive dividend payments through your broker, you are a street-name owner. Your shares were never recorded in your name on the books of the issuing corporation.
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Many corporate issuers are offering current and potential shareholders easy, cost-efficient and direct means to acquire, hold, and sell company stock through traditional and enhanced dividend reinvestment or shareholder service programs.
If you prefer to be a direct owner of your shares, the corporate issuer or the issuer's stock transfer agent may have investor services programs providing excellent alternatives in the T+3 environment.
Things to keep in mind:
- Holding shares in your account, depositing your certificates, or requesting certificates and terminating participation in investor services and dividend reinvestment is generally available at no cost.
- Purchases are made in shole dollar amounts. The service program administrator records your purchase in full and fractional shares into your4 account.
- Purchases and sales may be made as often as weekly. Some programs, however, may only permit transactions on a monthly or quarterly basis. you may, however, have to request a physical certificate in order to deliver shares to your broker if you do not sell shares through the company's program.
- Generally, purchase and sale transactions are based on an average market price of the stock.
- Some services, such as purchasing or selling shares, or reinvesting dividends, may have a modest service charge. Before investing in any program, read the prospectus or information statement and review any program fees.
- When dividends are paid, you may receive a dividend check directly from the issuer, or you may reinvest all or part of your dividend in additional shares of company stock.
There is no requirement
for you to hold your shares
in street-name form
now or after T+3