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How are Stock and Bonds Actually Purchased

In the good old days when you bought a share of stock, it was accompanied by a paper stock certificate. Today when you make this transaction, the broker will place your stock or bond purchase into their safekeeping under a “street name.” No bank or broker can place any stock or bond into their firm’s own name due to Federal Trade Commission (FTC) and Security and Exchange Commission (SEC) regulations. The broker or bank must then send the transaction to the DTCC for ledger posting or book entry settlement under mandate by the Federal Reserve System. Remember, since your bank or broker can’t use their name on the certificate, they use a fictitious street name.  

Since the DTC is a banking trust company, it can’t hold the certificates in its name wither…..so the DTCC transfers the certificates to its own private holding company or nominee name. The DTCC’s private holding company or street name, is shown as either “CEDE and Company”, “Cede Company” or “Cede & Co.”  After this transactional process, you, the so-called purchaser of the stocks, have no real, no actual, no legal claim over these stocks, certificates, or bonds.

Or, as one stockbroker said about the DTCC and ownership of stock: “Nobody owns stock. What you own is an entitlement to stock held for you by your broker. But your broker doesn’t own the stock either. What your broker owns is an entitlement to stock held for it by Cede & Co., which is a nominee of the Depository Trust Company, which is a company that is in the business of owning everyone’s stock for them. If I sell stock to you, I don’t have to courier over a paper share certificate, or call up the company and have it change its shareholder register. Our brokers just change some electronic entries at their DTC accounts and everything is cool.” 

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