Subject: Trading - Buy and Sell Stock Without a Broker

Last-Revised: 27 Sep 1993
Contributed-By: Franklin Antonio, Henry Chan Desu (henryc at panix.com)

Yes, you can buy/sell stock from/to a friend, relative or acquaintance without going through a broker. Call the company, talk to their investor relations person, and ask who the Transfer Agent for the stock is. The Transfer Agent is the person who accomplishes the transfer, i.e., by issuing new certificates with the buyer's name on them. The transfer agent is paid by the company to issue new certificates, and to keep track of who owns the company's stock. The name of the Transfer Agent is probably printed on your stock certificates, but it might have changed, so it is best to call and check.

The back of the certificate contains a stock power, i.e., those words that say you want the shares to be transferred. Fill out the transferee portion with the desired name, address, and tax id number to be registered. Sign the stock power exactly as the certificate is registered: joint tenancy will require signatures from all the people listed, stock that was issued in maiden name must be signed as such, etc. In addition to signing, you must get your signature(s) guaranteed. The signature guarantee is an obscure ritual. It is similar to a notary public, but different. The people who can provide a signature guarantee are banks and stock brokers who are members of an exchange. Now, your stock broker might not be too happy to see you and help you when you are trying to avoid paying a commission, so I suggest you get the guarantee from your bank. It's very easy. Someone at the bank checks your

signature card to see if your signature looks right and then applies a little rubber stamp. Also, if you have the time, have the transferee fill out a W-9 form to avoid any TEFRA withholding. W-9 forms are available from any bank or broker.

Then send it all to the transfer agent. The agent will usually recommend sending securities registered mail and insuring for 2% of the total value. For safety, many people send the endorsement in a separate envelope from the stock certificate, rather than using the back of the stock certificate (if you do this, include a note that says so.) SEC regulations require transfer agents to comply with a 3 business day turn-around time for 90% of the stock transfers received in good standing. In a few days, the buyer gets a stock certificate in the mail. Poof!

There is no law requiring you to use a broker to buy or sell stock, except in certain very special circumstances, such as restricted stock, or unregistered stock. As long as the stock being sold has been registered with the SEC (and all stock sold on the exchanges, NASDAQ, etc. has been registered by the company), then the public can buy and sell it at will. If you go out and create yourself a corporation (Brooklyn Bridge Inc), do not register your stock with the SEC, and then start selling stock in your company to a bunch of individuals, advertising it, etc, then you can easily violate many SEC regulations designed to protect the unsuspecting public. But this is very different than selling the ordinary registered stuff. If you own stock in a company that was issued prior to the time the company went public, depending on a variety of conditions in the SEC regulations, that stock may be restricted, and restricted stock requires some special procedures when it is sold.

In brief: I do not believe that the guy who offers on the net to sell people 1 share of Disney stock is violating any rules. Just for full disclosure: I'm not a lawyer.

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