Example of Custody Only Trading

In a typical stock transaction made through an online brokerage account, the transaction is handled electronically. Share certificates can be requested, at a cost, but are not automatically provided to the stock buyer. Instead, the ownership of the shares is tracked and recorded electronically by the DTC.

When someone purchases custody-only shares, which are far less common than shares that can be traded electronically, share certificates are generated in the buyer's name. The share certificates that were in the seller's name are canceled.

If the owner of the shares wishes to sell them, they must contact the transfer agent who will facilitate the creation of new share certificates in the new owner's name, and cancel the prior owner's certificates.