Transfer ownership

The right to transfer ownership means that stockholders can freely sell their shares whenever they want. There are investments out there that are challenging to liquidate (sell). Common stock typically is not one of them. Most of the time, it just takes a few clicks online or a simple call to a brokerage firm to cash in stock.

When an investor buys or sells a stock, the transfer agent is responsible for updating ownership behind the scenes. The transfer agent is an organization hired by issuers to do several things:

• Transfer ownership from sellers to buyers after the trade occurs
• Maintain book of stockholders
• Make dividend payments to stockholders
• Distribute proxies (voting materials) to stockholders
• Keep an accurate count of shares outstanding

The transfer agent is required to follow specific procedures when a stock transaction occurs. First, they redeem the seller’s shares, which means they cancel their ownership. Most securities today are held in book entry format, which means computer databases keep track of who owns what stock. The transfer agent updates its database of owners by canceling the seller’s ownership.

Next, the transfer agent adds the buyer to the list of stockholders. The transfer agent maintains an electronic book of ownership, which displays all current shareholders. On the settlement date, the seller is removed from the stockholder list, and the buyer is added. Last, the transfer agent will electronically issue shares to the buyer, now registered in their name.

This process will occur over the settlement timeframe of one business day (T+1 / trade date plus one business day) and is one reason why stock trades take time to finalize.