Stocks today are traded electronically. Most people who trade them on a stock exchange never take possession of physical stock certificates. Stocks are generally traded now in “registered” form, and no stock certificate is required to prove an investor’s ownership interest in a company.
However, in the past, many stocks were traded in “bearer” form, which means an investor had to have physical possession of the certificate to prove ownership of the stock. Stolen certificates could easily be liquidated by the thief, and transferring ownership from a buyer to a seller or from a seller to a buyer required the physical transfer of stock certificates.
Every company that issues stocks to be traded on the exchanges has a transfer agent, typically a bank or trust company, that handles transfers of the company’s stock and issues replacement certificates when necessary and appropriate. The transfer agent will require anyone requesting replacement of lost or stolen certificates to obtain a lost stock certificate bond, also known as a lost instrument bond. The bond protects the transfer agent from financial loss resulting from issuing a replacement certificate to someone not entitled to it.
Anyone who has misplaced stock certificates or has lost certificates due to theft, fire, flood, or other disaster will need to obtain a lost stock certificate bond in order to get them replaced.
Your immediate first step upon realizing that you need a replacement certificate is to contact the transfer agent of the company that issued the stock. You can usually find that information on the company’s website or by contacting the company’s investor relations department. As soon as you notify the transfer agent of missing certificates, a “stop transfer” will be placed on the certificate, which will keep anyone else from liquidating your shares.
The transfer agent will notify the proper authorities. As soon as you provide a lost stock bond, the transfer agent will complete the process for replacing your certificate(s), assured that if you turn out not to be the rightful owner of the missing certificates, the transfer agent will not be held responsible for any resulting financial loss. In the event of a claim, the surety company that issued the bond would cover the loss, but you would be responsible for reimbursing the surety company.
The one-time premium you pay is based on what the stock was worth on the day you purchase the bond. The penal amount of the bond (the maximum amount that will be paid out on a valid claim) is based on what the stock was worth at the time the transfer agent issued the stop transfer. If the value of the stock increased between your purchase of the bond and the issuance of the stop transfer, the penal amount of the bond would increase accordingly.
The surety company’s main concern in approving an application is whether or not the applicant is creditworthy and can come up with the funds to reimburse the surety for any claim filed against the bond by the transfer agent. Applicants with good credit typically pay as little as 1.5% of the penal amount of the bond.
If you have had the misfortune to lose a stock certificate and now need to purchase a lost stock certificate surety bond, reach out to us to today for help getting the bonds you need at a competitive rate.