Quick Answer
Proper securities delivery requires an acceptable certificate or book-entry position, valid transfer documentation, and checks that the security can be transferred without defect. Operations personnel distinguish registered from bearer certificates, validate transfer materials, track movements on a blotter, report certain missing instruments, and separate direct registration from electronic deposit or withdrawal processing.
Once a position is known and verified, the next question is whether it can move to the receiving party in a form that permits acceptance and transfer.
Certificate Types and Good Delivery
| Certificate type | Ownership and transfer characteristic |
|---|---|
| Registered certificate | Shows the registered owner's name; transfer requires proper assignment or endorsement. |
| Bearer certificate | Is payable to the holder, so possession supports transferability. |
- Good delivery: Delivery of a security in a form that permits the receiving party to accept and transfer it without defect.
- Transfer agent: The issuer's agent that records changes in registered ownership and processes certificate transfers.
- Stock power: A separate assignment document used to transfer ownership of stock.
- Bond power: A separate assignment document used to transfer ownership of a bond.
- The delivery requirements address assignments, powers of substitution, and delivery of registered securities.
Validation, Blotters, and Lost Certificates
- Validation of a certificate: Reviewing a certificate and its transfer documentation for authenticity and proper transferability before processing delivery or transfer.
- Securities blotter: A chronological record of securities transactions and deliveries used to track movement of securities.
- Lost certificate: A certificate reported missing, requiring handling that protects against transfer or negotiation of the missing instrument.
- Missing, lost, counterfeit, or stolen securities must be reported in the specified circumstances.
Direct Registration and Depository Processing
- Direct Registration System (DRS): A system permitting securities to be registered directly in the investor's name on the issuer's books in book-entry form.
- Deposit/Withdrawal at Custodian (DWAC): A process for electronically depositing securities into, or withdrawing securities from, a participant's account through the issuer's transfer agent.
- Depository-eligible securities: Securities eligible to be held and transferred through a securities depository in book-entry form, including eligible equity and debt securities.
- Delivery requirements also cover book-entry settlement, delivery dates, payment, and units of delivery.
| Process | What it does |
|---|---|
| DRS | Records the investor as the direct registered owner on the issuer's books. |
| DWAC | Electronically deposits securities into, or withdraws them from, a participant's account through the transfer agent. |
Exam Tip: Gotchas
- DRS establishes direct registered ownership. DWAC does not. DWAC is the electronic deposit or withdrawal process through the transfer agent.
- A security is not good delivery merely because it arrived. The receiving party must be able to accept and transfer it without defect.
Think of it this way: A registered certificate is like a named ticket that needs the right assignment to change hands. DRS puts the investor's name directly on the issuer's electronic list. DWAC is the electronic loading dock that moves a position into or out of a participant's account.