In the past, when people bought securities like stock, they received share certificates to prove their ownership in the companies they had invested in. The stock certificates were in paper form. And while some companies still issue them, they do not offer the only way for you to provide legal proof of company ownership.
These days, you can obtain proof of ownership electronically. And there is no need for you to present a stock certificate to get your dividends. And that is where book-entry form shares come in.
What Is Book-Entry Form?
Book-entry form refers to an investor’s ability to own different types of securities without needing a physical certificate. Instead, your interests in companies you invest in will be recorded in book-entry form as a way of keeping track of them and everyone else’s shares.
So, when you need to trade them, the ownership will be transferred in book form without necessitating the change in ownership via physical certificates. Therefore, any stocks held in that manner are known as book shares or book-entry form shares.
Direct Registration of Securities
First, the issuer may register securities in your name regardless of whether you bought them directly or through a broker. And your book shares will be held either by the company or its designated transfer agent. If that happens, you will be said to own securities through direct registration (DRS).
DRS book shares enable you to access corporate communications directly since the company has your details. Also, the method allows you to transfer securities fast because you can instruct your broker to sell your securities by moving them through DRS from the company’s books without you having to fill in many forms.
Remember, though, that it will be difficult for you to take advantage of specific market prices. That’s because the company will trade your shares periodically at average market prices that may be lower than you expected.
Street Name Registration
Alternatively, your broker can register your securities in their name within the issuer’s books. However, the brokerage firm will record your ownership in book-entry form so that it keeps track of your holdings. Also, it will hold the security in your account, which will also be credited with interest payments and dividends.
One primary benefit of book shares registered in this manner is that you can set a price limit and give your broker instructions to sell when the conditions are fulfilled. Also, you do not have to worry about losing your stock certificates because it is your broker’s responsibility to keep them safe.
In addition, brokerages tend to inform their clients of other financial developments, such as when an issuer calls a bond.
Another added advantage of street name registrations is that they enable you to hold margin accounts. So, you can use your book shares as collateral and borrow funds to invest in other securities that are likely to pay off in the future.
Book-Entry vs. Certificated Shares
Many differences exist between book-entry and certificated shares. It is worth noting, though, that book shares offer the same privileges and rights as the traditional versions that come with physical certificates.
The most significant difference is that the certificated shares come with a physical certificate to show proof of ownership while book-entry shares do not.
Book-entry form stocks are much harder to steal or lose since you do not need the certificates. And since issuers, their designated transfer agents or brokerages are responsible for keeping them safe and have enough resources to do so, you can invest with minimal worries. In addition, there is minimal risk of forgeries concerning book-entry stocks compared to certificated shares. The latter may even require you to pay a fee to replace them if they get stolen or lost.
Another advantage of book shares over certificated shares is that they require fewer administrative costs to register and trade. Also, they are more efficient.
That said, certificated shares enable you to receive corporate communications directly and use them as collateral at the same time.
Also, many old versions are now collectibles and can be sold for additional money, especially if prominent people autographed them.
I have been a freelance writer since 2011. When I am not writing, I enjoy reading, watching cooking and lifestyle shows, and fantasizing about world travels.