0. Stock Transfer Agent Basics
Dan Loeffler Chris Ward Relationship Manager Relationship Manager
July 13th, 2017
© 2017 Wells Fargo Bank, N.A. All rights reserved. For public use.

1. What is a stock transfer agent?
A transfer agent is appointed by a company to maintain records of investors’ ownership.
A transfer agent provides a number of services to a company associated with issuing shares of publicly traded stock but their primary role is that of registrar (the record keeper).

2. Why do companies hire a transfer agent?
The transfer agent’s services provide a cost effective way to meet many of the obligations that come with having shareholders, including complying with federal and state securities regulations.
The transfer agent has the people, technology and expertise to handle ongoing maintenance of shareholder records, dividend payments, proxy mailings and complex transactions (mergers, acquisitions, tender offers, spinoffs, etc.)

3. Two types of shareholders:
Registered and Beneficial
Registered shareholders are serviced by the transfer agent.
Beneficial shareholders are usually serviced by a third party, such as a brokerage firm.

4. Registered Shareowner
Also known as “shareholders of record”
These are people, groups or entities that hold shares directly in their own name on the company’s register.
The issuing company, or its transfer agent, then keeps the records of ownership for the shareholder and provides services such as transferring shares, paying dividends, coordinating shareholder communications, and more.
This ownership is represented by either a physical stock certificate or held in Direct Registration (DRS) in a “book” position in the name of the shareholder.

5. Beneficial Shareowner
Beneficial shareowners hold their shares with a bank, broker or other financial institutions.
When shares are kept in this manner, it is often referred to as keeping the shares in “street name.”
On the transfer agents records these shares are primarily held in the name of a depository.
Transfer Agent
Registered Shareowner
DTCC or CEDE
Broker
Beneficial Shareowner

6. Transfer agent responsibilities
Dividend disbursement
Investment plan services
Cost basis tracking
Annual meeting services
Escheatment
Lost shareholder searches
Corporate Actions
Maintain records of registered shareholders
Share issuances
Ownership changes

7. Dividend disbursement
Calculate and pay dividends
Payments made by check, direct deposit (ACH), and dividend reinvestment
Deduct applicable back-up withholding and non-resident alien tax
Tax reporting to IRS
Routine W-9/W-8 BEN solicitation
Issue duplicate copies of tax forms as requested by shareholder

8. Investment plan services
Direct stock purchase/Dividend reinvestment plan
Registered or bank sponsored plan
Simple, low-cost program attracts potential investors
Customizable plan delivers flexibility around investment methods and timing
Ability to target “affinity groups” (e.g. customers) and even raise capital
Grow your registered shareholders
Establish a direct communication channel with investors
Increase investor loyalty (registered holders tend to vote with management and hold shares for a longer period)
Employee stock purchase plan
Administration of employee enrollment according to your defined criteria
Distribution of plan materials to eligible employees
Ongoing enrollment/management including internet and telephone enrollment options
Effective and accurate recordkeeping of plan participation
Perform necessary tax and disclosure activities

9. Cost basis tracking
Cost basis regulation effective January 1, 2011 required financial institutions such as transfer agent, banks and brokers to report cost basis to investors and to IRS for security transactions.
Covered securities vs non-covered securities
Acquisition price per share
Acquisition date
Adjusted cost basis

10. Annual meeting services
Provide certified shareholder list
Perform broker search and fill requests
Insert and mail proxy materials to all registered shareholders and any outside stock plans
Provide Affidavit of Mailing
Provide telephone and internet voting options
Provide daily reports of registered shareholder voting totals
Tabulate proxies for all holders
Provide final reports of voting for all holders
Attend shareholder meeting and act as Inspector of Election

11. Escheatment of abandoned property
Escheatment is the process of transferring lost or abandoned property to a state.
How can securities like shares of stock become abandoned? This happens in a number of ways. Here are some of the more common:
The shareowner is deceased, and left no will or living heirs
The shareowner moved, but did not update their mailing address
The securities are in an account that the shareowner forgot they had.

12. Lost shareholder search
It’s in the best interest of the transfer agent and the company to locate shareholders instead of escheating the property
Returned mail back to Shareowner Services
Account is coded in system as undeliverable (if mail is returned twice, the account is deemed lost)
Date in which the account was determined lost is recorded
Conduct a national database search
First search between 3 and 12 months from the time the account was deemed lost
Conduct second search between 6 and 12 months after the first search
Due diligence letter
Prior to escheating the property to the state, a final attempt at contact is made

13. Corporate actions Paying Agent Exchange Agent Distribution Agent
Tender Agent

14. Maintain records of registered shareholders
Transfer agents maintain a record of ownership, or registrar, of issued and outstanding shares of stock. This record includes contact information for an issuer’s registered shareholders, as well as their account details.
Note: Brokers maintain the records of beneficial shareholders.
A transfer agent has the facilities to assist companies and shareowners with a wide variety or transactions all of which are very important in the process of maintaining records.
Share Issuances
DWAC’s and share movement through the DRS profile system
Transfer of shares (Ownership Change)

15. Share issuances Electronic issuance of shares:
Deposit or Withdrawal At Custodian (DWAC)
Direct Registration System (DRS)
Restricted Book-entry
Physical issuance of shares:
Stock certificate
Typically certificates are issued for restricted stock

16. Sample issuance instruction letter

17. DWAC’s and share movement through the DRS profile system
Deposit or Withdrawal At Custodian (DWAC)
The DWAC program at DTC is used to transfer shares from the issuer’s transfer agent to a broker/participant or for repurchased shares, from a broker/participant to a transfer agent.
Shares transferred are typically a result of a stock option exercise or employee plans.
Direct Registration System (DRS)
DRS allows registered shareholders to hold their shares in book entry form with the issuer’s transfer agent.
The system allows shares to be transferred electronically between the broker/participant and the transfer agent.
Transfer Agent  Broker/Participant
Broker/Participant  Transfer Agent
DRS supports the industry’s initiative for dematerialization of physical securities.

18. Broker initiates the DWAC
DWAC process
WFSS
Broker
Beneficial
holder (options)
Company
Depository trust company (DTC)
Cede & Co. A F B E C D
Broker initiates the DWAC

19. What does a DWAC look like?

20. DWAC accepted

21. Medallion guarantee stamp
A medallion signature guarantee is a unique signature guarantee used to facilitate the transfer of securities.
Each medallion stamp guarantor carries a surety bond that provides financial backing to protect issuers and transfer agents against loss from wrongful or fraudulent signatures.
A medallion signature guarantee may be obtained at most full-service banks, brokerage firms, and larger credit unions.
What does a medallion stamp signify on an endorsement?
The signature is genuine
The signer is an appropriate person to endorse
The signer has legal capacity to sign

22. Surety value of medallion stamps
There is a unique identification number with a letter prefix on each medallion stamp which signifies the amount of surety bond obtained. The stamp must cover the entire value of the shares being transferred.
Alpha prefix Surety amount
A $ 1 million
B $ 750,000
C $ 500,000
D $ 250,000
E $ 100,000
F $ 100,000 (Credit Union)
X $ 2 million
Y $ 5 million
Z $ 10 million and higher

23. Transfer shares or ownership change
One of a transfer agent’s primary duties is assisting registered shareholders with requests to transfer ownership of their shares. This can be done using a Stock Power Form to capture the details of the registered shareholder’s request, or the shareholder can send in a letter detailing their request.
Shareholder or broker presents instructions to transfer agent
Instruction letter or stock power form
Signature(s) must be medallion stamp guaranteed
Physical certificate(s) presented, if applicable
If shares are restricted, legal opinion from issuer’s counsel must be presented
Presentment is reviewed by transfer agent
Transfer is completed or rejected

24. Additional transfer agent oversight and monitored activities
Transaction processing requirements
Prompt responses to inquiries
Accuracy and retention of records
Safeguarding of funds and securities
Evaluation of internal accounting controls
Proper handling of stock certificates
Searches for “lost” shareholders conducted according to the applicable state law

25. Current issues in the transfer agent world
The Securities and Exchange Commission (SEC) has adopted an amendment to shorten the standard settlement cycle for most broker-dealer securities transactions.
The amended rule will shorten the settlement cycle from trade date plus three business days (T+3) to trade date plus two business days (T+2)
The U.S. Financial services industry is scheduled to implement this change on Tuesday, September 5, 2017

26. Questions?
Thank you for joining us today