Transfer ownership

The right to transfer ownership means stockholders can sell their shares whenever they want. Some investments are difficult to liquidate (sell), but common stock usually isn’t one of them. In most cases, selling stock takes only a few clicks online or a quick call to a brokerage firm.

When an investor buys or sells stock, the transfer agent updates the official ownership records behind the scenes. A transfer agent is an organization hired by issuers to handle several key tasks:

• 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 follows specific procedures when a stock transaction occurs. First, the transfer agent redeems the seller’s shares, meaning it cancels the seller’s ownership. Most securities today are held in book entry format, where computer databases track who owns which shares. The transfer agent updates its records by removing (canceling) the seller’s ownership.

Next, the transfer agent records the buyer as the new owner. The transfer agent maintains an electronic book of ownership that lists all current shareholders. On the settlement date, the seller is removed from the stockholder list and the buyer is added. Finally, the transfer agent electronically issues shares to the buyer, now registered in the buyer’s name.

This process happens over the settlement timeframe of one business day (T+1 / trade date plus one business day). That settlement window is one reason stock trades aren’t considered fully final until settlement occurs.