Deposit/Withdrawal at Custodian (DWAC): A Comprehensive Guide
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Summary:
Deposit/withdrawal at custodian (DWAC) is a powerful electronic method for transferring securities between investors, brokers, and the Depository Trust Company (DTC). This comprehensive guide explores DWAC in detail, covering its benefits, eligibility requirements, and practical aspects. Learn how DWAC can streamline your investment journey and safeguard your assets.
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Understanding deposit/withdrawal at custodian (DWAC)
Deposit/withdrawal at custodian (DWAC) is an electronic system that revolutionizes the way securities are transferred between investors, brokers, and the Depository Trust Company (DTC). It operates through a Fast Automated Securities Transfer (FAST) service transfer agent, serving as the distribution point for new shares or paper share certificates. DWAC and the Direct Registry System (DRS) are the two primary methods of transferring securities to and from broker/dealers and the DTC. However, DWAC offers unique advantages that make it an attractive choice for many investors.
The power of DWAC
DWAC unlocks several key benefits for investors:
- Efficiency: DWAC enables immediate electronic transfers to brokerage accounts, eliminating the need for physical delivery and significantly expediting the settlement process.
- Cost savings: By eliminating the costs associated with printing physical certificates and mailing them, DWAC helps investors save money.
- Risk mitigation: Since DWAC operates entirely electronically, there’s no risk of loss or damage to physical certificates during transportation and handling.
Eligibility requirements for DWAC
While investors may not typically need to worry about DWAC eligibility, it’s important to understand the requirements:
- Free trading shares: The shares being transferred must be free trading or eligible for restriction removal.
- DTC participant broker: Your broker must be a participant in the Depository Trust Company.
- Issuer eligibility: The issuer of the securities must be DWAC eligible.
What is FAST?
The Fast Automated Securities Transfer Program (FAST) plays a crucial role in the DWAC process. It represents a contract between DTC and transfer agents, with FAST agents acting as custodians for DTC. FAST eliminates the need to physically move securities, contributing to the industry’s dematerialization efforts. This program substantially reduces costs associated with shipping certificates to and from agents, as well as the expenses tied to printing and processing certificates. However, it’s important to note that the FAST program does not apply to money market securities.
Requesting and delivering physical certificates
Although DWAC is primarily an electronic process, investors still have the option to withdraw their stock from brokerage accounts and request physical stock certificates. This can be done by:
- Initiating through broker: You can have your broker initiate the request through DTC to obtain a physical stock certificate.
- Direct DWAC system: Alternatively, your broker can send the shares electronically directly to the transfer agent via the DWAC system, which is more efficient and cost-effective.
It’s important to note that there may be fees associated with these services. In most cases, withdrawing DWAC shares as physical certificates requires a Medallion Signature Guarantee. This certification stamp guarantees the authenticity of the signature on the share certificate, providing an added layer of security.
Frequently asked questions
How does DWAC differ from DRS?
DWAC and DRS are both methods for electronically transferring securities, but they have distinct characteristics. DWAC is primarily used for new shares or paper share certificates and operates through a FAST service transfer agent. In contrast, DRS involves securities that have already been issued and are held electronically on the books of the transfer agent.
Can I use DWAC for any type of securities?
DWAC is suitable for a wide range of securities; however, it’s essential to ensure that the shares you intend to transfer meet the eligibility requirements. They must be free trading or eligible for restriction removal.
Are there any fees associated with DWAC transfers?
While DWAC itself does not typically impose fees, your broker may charge fees for initiating DWAC transfers or for converting electronic shares to physical certificates. Additionally, obtaining a Medallion Signature Guarantee may come with a fee.
Is DWAC available for international investors?
DWAC is primarily used within the United States and may have limitations for international investors. It’s advisable to consult with your broker or financial institution to determine the availability and suitability of DWAC for your specific situation.
Key takeaways
- DWAC offers efficient, cost-effective, and secure electronic transfers of securities.
- Eligibility requirements must be met to use DWAC, and fees may apply.
- Investors have the flexibility to request physical stock certificates when needed.
- International investors should verify DWAC availability with their financial institutions.
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