Why Your Stocks Don’t Belong to You… and How You Can Change That

Most investors believe that their stocks belong directly to them. This article explains why that isn’t always the case and what alternatives exist to effectively put the stocks in your name.

You’ve been diligently building your wealth for years, investing every month in ETFs or individual stocks, and now you enjoy checking your portfolio balance. The screen states, in black and white, that these holdings “belong to you,” even if, for example, your custodian were to go bankrupt.

However, if the financial system were to falter, you might discover something unsettling: there can be a huge difference between “this belongs to me” and “I can dispose of it.” It is precisely the shift from physical stock certificates to digital accounting records at central depositories that has radically transformed the structure of ownership in recent decades. With this article, we want to draw your attention to this issue and, of course, show you the available solutions.

The system is vulnerable because, as is often the case when things get serious, it is based on trust—in this instance, trust in intermediaries and trust that the systems will function properly. As long as depositary banks and custodians remain stable, everything seems to be under your control. And many investors automatically equate their rights to securities with the physical possession of those securities, because under normal conditions the difference is barely noticeable.

But real crises teach us, time and again, that legal certainty and effective control are not the same thing. Even when the law is on your side.

And a clarification before we begin: if you’ve already heard of the Direct Registration System, or DRS; if you know, for example, that securities custody in the United States is handled through the Depository Trust & Clearing Corporation, or DTCC, and that Clearstream is involved in Germany; or if you’ve ever heard Computershare mentioned in this context, you’ve probably already worried at some point about the actual security of your shares.

On the other hand, if these terms mean nothing to you, or you’ve only heard them in passing, this article is especially important for you.

Having a right to something is not the same as being the owner

They vehemently assure you that, even in the event of your custodian’s insolvency, “your shares will, of course, remain yours.” They claim that these are “special assets” and would never form part of the insolvency estate.

Formally, much of this is true: securities must be held in custody separately from the bank’s balance sheet, and, in principle, you have what is known as a “right of separation” from the pool.

The fact is that a bank does not hold shares individually for each client but rather groups them into a large pool. Legally, your shares are attributed to you, but they are held in the custodian’s system as part of a single global security.

To better understand this, let’s consider Clearstream, one of Europe’s major securities custody and settlement infrastructures.

If the bank, broker, or institution where you hold your securities account goes bankrupt, the general rule specifies that the assets belonging to that entity become part of the bankruptcy estate, but clients’ securities should not. In theory, your shares are not owned by the bank. The bank merely holds them on your behalf. So far, so good.

The problem begins when we look at how the chain of custody actually works. Your shares aren’t kept in a separate box with your name on it, nor are they necessarily registered directly in your name in the company’s registry. Typically, they pass through a complex structure consisting of banks, brokers, custodians, central depositories, sub-depositories, and, in some cases, mechanisms such as securities lending.

As long as everything goes smoothly, the difference is barely noticeable. You open the app, view your positions, collect dividends, buy, sell, and vote when applicable. From a practical standpoint, it seems as though you have full and unencumbered ownership.

However, if a serious disruption occurs in the system—if a bankruptcy arises at a higher level of the financial infrastructure, or if there is a shortfall of securities due to securities lending, fraud, operational error, or even government intervention—the situation can change radically. What seemed to be solely yours, separate and perfectly protected, becomes a less concrete right than you thought, subject to a lengthy, technical, and inconvenient process for the investor.

And in that scenario, legal safeguards or investor protection systems may fall short, especially if the problem does not originate directly with your broker but at a higher level in the chain.

That is precisely why some investors seek alternatives such as the Direct Registration System (DRS), used in the United States through transfer agents. With this system, shares are not registered through the standard chain of intermediaries but directly in the investor’s name. You do not receive a physical paper certificate, nor does an intermediary appear as the registered owner of the shares.

The Depository Trust & Clearing Corporation (DTCC, the major U.S. securities clearing and settlement infrastructure) enables the highly efficient processing of enormous volumes of transactions. But efficiency does not mean direct ownership. And just because a system is convenient, fast, and works well under normal conditions does not mean it is the form of ownership that gives you the most control over your assets.

When Securities Became a Matter of Trust

To understand how we got here, it’s worth taking a step back.

For a long time, shares were something much more tangible: a physical certificate, a document representing a specific stake in a company. But that world gradually disappeared.

In Spain, the transition toward the dematerialization of securities took hold in the late 1980s and early 1990s, with the Securities Market Act and the development of the book-entry system. Since then, listed shares have, in practice, ceased to function as physical certificates that investors could keep in a safe and have instead become positions reflected in an accounting ledger.

In Germany, paper shares had already been phased out of retail investors’ day-to-day operations during the 1990s. With the turn of the millennium, collective custody became the definitive standard, and shares came to be managed, in practice, through global certificates and accounting records.

In the United States, this centralization process began even earlier. The creation of the structure we now associate with the DTCC in the 1970s gradually replaced the exchange of physical certificates with an increasingly electronic clearing, settlement, and custody system. By the late 1980s, the U.S. market was already operating almost entirely through digitized chains of custody.

Switzerland followed a similar trajectory beginning in the late 1990s. With the shift to electronic registration starting in 2000, physical shares gradually disappeared from common practice.

The result is that today, although ownership may be legally defined, the object to which that ownership pertains is no longer typically a piece of paper that you can store, transport, or hold directly. It is an entry within a system. And that system depends on banks, brokers, custodians, central depositories, electronic registries, and technical processes that must function correctly.

Put another way: ownership has not disappeared, but it has become much more abstract. And the more abstract it becomes, the more it depends on trust in the infrastructure that supports it.

A system made up of a few powerful control centers

If we look beyond the broker’s interface, an uncomfortable reality emerges: the infrastructure underpinning modern securities ownership is concentrated in very few hands.

And here we return to a problem that crops up time and again in very different areas: digital identity, education, banking, personal data, or, in this case, stocks. The problem isn’t just technical. It’s structural. Whenever too much power, too much information, or too much operational capacity is concentrated in a single point, a risk of concentration arises.

As long as everything works well, that centralization seems like an advantage. It makes the system faster, cheaper, and more efficient. But it also makes it more fragile. If that central point fails, becomes blocked, or is used for political purposes, it’s not just a small, isolated part that fails—the entire system can be affected. And when there is no real alternative, whoever controls that infrastructure ends up wielding enormous power over everyone who depends on it.

That’s why it’s important to always keep this idea in mind: efficiency does not eliminate risk. Often, it merely concentrates it.

Clearstream holds virtually all domestic securities in Germany; in Switzerland, this role is fulfilled by SIX SIS AG; and in Spain, the central securities depository is Iberclear, part of BME and currently within the Swiss SIX Group.

Legally, these entities do not own your shares. But in practice, they form part of the system’s bottleneck. If one of these central depositories suffers a serious disruption, your right to the shares does not automatically disappear, but your access to them may be blocked, delayed, or temporarily rendered unusable.

In a real systemic crisis, your securities may cease to be something you can normally access and become merely an entry within an infrastructure that, under certain circumstances, you cannot access.

And that’s where another problem arises: in an extreme situation, not all players carry the same weight. Large banks, clearinghouses, systemically important intermediaries, and the institutions that underpin the financial architecture typically take practical priority over the small investor. Not because your rights don’t exist, but because, when the system goes into survival mode, authorities and major operators tend to protect first what they consider essential to prevent a larger collapse.

J.P. Morgan, Deutsche Bank, or any other large systemic institution carries more weight on the board than a small individual saver. It may sound unpleasant, but it’s not science fiction. Past crises have already shown that, when the time comes to decide what to save first, the system tends to prioritize what it considers “too big to fail.”

And that is precisely why it makes sense to avoid concentration risks as much as possible. It’s not about living in fear or thinking that everything will collapse tomorrow. It’s about understanding how the system is built and not blindly relying on a single country, a single bank, a single broker, a single currency, or a single infrastructure.

That is, ultimately, one of the central ideas of Flag Theory: do not concentrate your life, your wealth, and your freedom in a single point of failure.

Securities Lending: When Your Brokerage Account Lends Out Your Securities… and Your Risk Remains

Another risk lies in securities lending. Banks and brokers often use the shares they have on record—behind the scenes—to lend them, in exchange for a fee, to hedge funds, short sellers, and other market participants.

On your portfolio statement, everything looks the same. However, during that time, from a legal standpoint, you are no longer the direct owner of those securities—the borrower is—with all the risks that entails in a crisis situation.

If turbulence, forced liquidations, or even insolvencies occur within this chain, the borrowed shares may not be returned on time. And then you, as the economic “owner,” may suddenly find yourself without effective access to them, even though your portfolio appears formally complete.

This, in turn, can have far-reaching consequences. In Sweden, for example, a contractual document from SEB Bank has reportedly surfaced stating that, “in the event of a securities shortfall, no right of separation can be asserted. In such a scenario, the affected client would likely be classified as an unsecured creditor, with no preferential claim on the bankruptcy estate” (source).

In other words: if a stock shortage occurs within the chain of custody—a discrepancy between the number of shares actually held in custody and the sum of all positions reflected in clients’ portfolios—that special right expires under that clause.

When There Are More Rights Than Actual Shares

Let’s consider a specific example: the bank has 1 million shares deposited in the collective portfolio, but the clients, taken together, are entitled to 1.2 million shares. There is, therefore, a structural shortfall of 200,000 shares.

In such a scenario, you can no longer demand the delivery of specific shares, because there are simply fewer actual shares than rights granted to investors.

And this is where everything changes.

The moment the right of separation ceases to apply, you still have a claim, but you no longer act as an owner with priority protection. Legally, you are treated as an unsecured creditor.

In practice, this is very similar to having granted a loan to a bank: you have a formal claim against the entity, but not a preferential right to receive your shares. In insolvency proceedings, you join the general queue of creditors alongside banks, funds, institutional counterparties, and other business partners.

You have no priority. You would only be paid if there are sufficient assets remaining after preferred creditors have been satisfied. Furthermore, you would not necessarily receive shares, but rather a cash distribution from the insolvency estate.

It’s important to be realistic: in a crisis of this kind, governments, large financial institutions, and systemically important entities typically receive preferential treatment—whether legal, political, or practical. The small investor does not.

Therefore, if the bankruptcy is severe and the securities shortfall is real, it’s entirely possible that you’ll end up recovering little or nothing.

Concrete solutions: what you can do

If you want to completely break the chain of custody for U.S. stocks, the Direct Registration System (DRS) offers a viable option.

Unlike many European brokers, who rarely promote the DRS, U.S. brokers such as Charles Schwab, Fidelity, TD Ameritrade, or even Interactive Brokers can register your positions directly in the company’s share register for $250 per share—a cost that may be worth it for larger, long-term positions.

This fee covers the administrative costs of registering your name with the transfer agent rather than with the broker. The alternative—holding the shares through the market—may be cheaper, but it places you further down the hierarchy of creditors.

However, the DRS not only eliminates your broker’s counterparty risk but also protects you against two other scenarios we’ve already mentioned: securities lending and contractual breaches.

Once your shares are registered directly in your name with the transfer agent—for example, Computershare—they are no longer part of the broker’s ordinary chain of custody. This means they cannot be lent out by the intermediary nor be affected by contractual clauses that, in the event of a securities shortfall, could exclude the investor from the right of separation, as SEB warns in its legal documentation on CSDR.

In other words: those shares no longer appear within the pool managed by the broker, the custodian, and the clearing system. They remain outside that chain of intermediaries and, therefore, outside the scope of the specific risks we have described.

Computershare—an Australian company—is one of the largest and best-known transfer agents. It manages the official shareholder registry on behalf of companies and ensures that all ownership rights, transfers, dividend payments, and voting rights notifications are properly recorded and processed.

Unlike central depositories such as Clearstream, etc., Computershare does not maintain collective portfolios; rather, it only maintains the legal registry in which you, as a shareholder, are personally registered.

Computershare also does not hold the shares “on its own account” as a depository would. Its role is different: it manages the shareholder registry on behalf of the issuing company.

Therefore, if at any time the company changes its transfer agent, management of the registry will pass to the new provider, but your registration as a shareholder does not disappear. You continue to appear as the registered owner of those shares.

That is precisely the advantage of direct registration: you break free from the anonymous chain of brokers, custodians, and omnibus accounts, and appear directly in the company’s shareholder registry.

What the DRS Achieves Technically—and What It Doesn’t

Instead of your broker being listed in the shareholder registry, you appear directly as a registered shareholder. It’s not that you receive a physical certificate, but you do gain a direct connection with the company. Voting rights, dividends, reports, and other communications come directly from the company or its transfer agent, without having to go through the broker.

This not only protects you against potential insolvency but also prevents your vote from being diluted at general meetings or your position from being made available to short sellers.

However, keep in mind that most transfer agents do not offer brokerage services—in other words, they do not allow you to buy and sell shares directly. So, if you want to sell quickly, you first have to transfer the shares back to a broker, a process that can take anywhere from days to weeks. But if you’re investing for the long term and prioritize control above all else, this is the path for you.

Direct registration through DRS means that, for every share you remove from the broker/CSD chain, one unit is delisted from the central depository’s pool and recorded in your name in the company’s registry.

In short: by using central depositories like Clearstream and the like, you become part of the anonymous mass of “clients of a broker participating in a central depository.” If you switch to DRS/Computershare, you once again become what investors intuitively believe themselves to be: a shareholder registered in your own name, with an entry in the registry that is independent of both your broker and the central securities depository. Although it requires some effort, it may be worth it.

The following chart, which covers the U.S. market, illustrates this clearly:

The Direct Registration System (DRS) at Interactive Brokers and the Role of Computershare

Interactive Brokers (IBKR) is one of the favorite trading platforms for many of our clients, as it serves both individual and institutional clients from nearly all jurisdictions and offers unparalleled market access.

Fortunately, IBKR also supports transfers via the Direct Registration System, at least in the United States. This allows you to transfer your securities from your brokerage account to a transfer agent such as Computershare, or vice versa, back to your brokerage account. The transfer process is fully integrated into IB’s client portal and can be initiated without having to make a phone call.

In the case of U.S. stocks, the instruction is typically forwarded to Computershare Investor Services, while IB acts solely as the originator and does not automatically process ownership registrations.

The transfer must always be initiated and authorized manually by the user; there is no automatic direct registration. The requirement is that the transferred shares be fully available in the account, settled, and not subject to any outstanding margin or clearing obligations, since, logically, only free positions can be used for a registration transfer.

Although there are other major U.S. brokers, such as Charles Schwab or Fidelity Investments, that also offer the option to transfer to a transfer agent like Computershare, none of them provide a significant advantage over Interactive Brokers; in fact, they often present more issues, for example, with KYC and registration.

Without a robust regulatory compliance structure in the U.S., your best option is likely to choose IBKR, and it’s best to do so through the U.S. or Hong Kong office. To open an account there, your utility bill and tax ID number must be from outside the EU; otherwise, due to capital markets legislation, you’ll be automatically assigned to the Irish branch. But that offers an entirely different level of asset protection.

Direct Registration in Other Countries

Unfortunately, Interactive Brokers can only offer direct registration in the U.S., not in other countries. Regrettably, we are not aware of any broker accessible to retail clients that registers registered shares directly worldwide.

Anyone wishing to trade in different markets with the security of beneficial ownership must be prepared to deal with the hassle of maintaining multiple brokerage accounts covering the relevant markets. Swiss stocks, for example, can be registered directly through Swissquote, and in some cases also through certain German custodian banks (DKB does this free of charge, for instance). However, these banks, in turn, do not have access to direct registration in the U.S. or other countries.

German banks with custody accounts, such as DKB, Commerzbank, and Deutsche Bank, as well as, for example, Flatex, continue to offer registered shares as standard. However, this is not the case with some popular online brokers. Trade Republic and Scalable Capital, for example, only register shares upon request and at an additional cost. The most budget-friendly brokers, such as Degiro.com or Lynxbroker, do not even offer this option. In these cases, the shares are always held in the broker’s name within the chain of custody, while you remain merely the holder of a claim against the brokerage firm.

The following table provides a good overview of the topic:

Broker Standard	Registration / available	Registration cost
ING	Yes / Yes	None
DKB	Yes / Yes	None
Sparkassen Broker	Yes / Yes	None
Targobank	Yes / Yes	None
Postbank	Yes / Yes	None
Scalable Capital	No / Yes	None
1822direkt	Yes / Yes	€0.59
Flatex	Yes / Yes €0.60	per order
onvista bank	Yes / Yes	€0.89 on the net increase at the end of the day
Comdirect	Yes / Yes	€0.95 per order
Smartbroker	Yes / Yes	€1 per order
Consorsbank	Yes / Yes	€1.95 per order
Trade Republic	No / Yes	€2 per order
justTRADE	No / No	None
LYNX Broker	No / No	None
Degiro	No / No	None

 

Note: Unlike the situation in the United States with Computershare, direct registration of shares through Clearstream is not a realistic option for individual investors. In theory, it may exist as a service, but in practice it is not intended for small investors: Clearstream charges over 30,000 euros per year for this—let everyone draw their own conclusions as to why they do it this way. By comparison, the $250 per transfer in the U.S. is a bargain. This proves once again that stock markets serve institutional investors, not you. In the event of bankruptcy, institutions with large assets and wealthy individual investors will be given priority as creditors, while you’ll be left empty-handed. Incidentally, this is one of the reasons why even the wealthiest professionals often do not manage their stocks on their own, but instead deposit them in accounts with, for example, Swiss or Liechtenstein private banks, which can register them directly as registered shares.

For those investing in Anglo-Saxon markets, Computershare may be a good option. In countries such as the United States, Canada, Australia, and other English-speaking markets, similar direct registration options exist, although they do not always work the same way or are available for all stocks. So, before taking anything for granted, you’ll need to check whether the shares you’re interested in can be registered directly in your name or if you need to use a broker with the right connections to initiate the process. And the same applies to any other market in the world: if you want to break out of the standard chain of custody, you’ll need to investigate on a case-by-case basis.

If you decide to ignore all of this, you’ll remain simply the beneficial owner: the economic owner of a position, but not necessarily the shareholder directly listed on the registry. In other words, you’ll continue to depend on a chain of intermediaries, and in the event of problems, you could end up being treated as a subordinated creditor, without the same degree of control that a directly registered owner would have. After everything we’ve seen in recent years, it’s wise not to rule out scenarios just because they seem unlikely. Why would your stock portfolio necessarily be immune to the risks that have already affected banks, accounts, frozen assets, platforms, and payment systems? At the very least, you should consider this possibility and take it into account when designing your investment strategy.

Other Asset Classes Without Intermediaries

Of course, you can also invest in completely different assets that allow you to bypass intermediaries entirely. Physical gold or cryptocurrencies like Bitcoin stored in a hardware wallet offer a decisive advantage in the context of this portfolio issue: they completely eliminate the entire chain of intermediaries.

Gold stored in a safe—in extreme cases, even at home—or in a private vault is physically under your control. It does not depend on central depositories, brokers, or chains of custody.

But here, too, it’s best to hold the asset in its original form. As soon as you replace it with a certificate, a share, an ETF, or a claim against a third party, you’re back to the same problem: you no longer own the asset itself, but rather a right to the asset.

Bitcoin, on the other hand, has largely been co-opted by Wall Street and gradually transformed into something akin to a stock: a financial asset brokered through intermediaries, held in custody by third parties, and increasingly removed from direct ownership. Ultimately, this is a logical evolution if one understands how the financial system has gradually stripped property rights over securities of their substance.

However, with decentralized cryptocurrencies and a hardware wallet, you can also control the private keys yourself; your coins do not exist as an entry in a broker’s ledger at Clearstream or DTCC, but directly in your wallet.

But to what extent you’ll be able to continue withdrawing money cleanly from these anonymous and decentralized coins in the long term is another matter. This lack of fungibility is increasingly becoming a major problem, especially for Bitcoin. The trend, in fact, points toward distinguishing between regulated system coins and pseudonymous hardware wallet coins, which have different values—something fatal to the much-cited “store of value” and “digital gold.” Nor can we continue to downplay Bitcoin’s vulnerability to quantum computers and the complete traceability enabled by its pseudonymity. Is Bitcoin merely a trap designed to catch, on a large scale starting in 2026, those who have evaded taxes in the past?

The DAC8 laws, which took effect on January 1, 2026, entail seamless data exchange between many exchanges worldwide and all EU countries. And although the first exchange of data won’t take place until mid-2027, the software to track all transactions has existed for some time.

But, returning to the main topic of this article…

Has there ever been a case where shareholders, acting through brokers, were unable to assert their ownership rights?

The answer is that we are not aware of any recent case in Western Europe in which a major central securities depository such as Clearstream, Euroclear, SIX SIS, or Iberclear has gone bankrupt, resulting in small investors losing their shares en masse. That extreme scenario has not, for now, materialized in that way.

But that does not mean the risk is imaginary.

What we have seen time and again, however, are specific aspects of that same problem: frozen assets, reused securities, clients trapped for years in bankruptcy proceedings, portfolio statements that did not correspond to actual assets, supposedly segregated funds that showed deficits, and political decisions that prevent access to securities even though the legal right to them still exists.

Lehman Brothers International Europe is probably one of the clearest examples. Many institutional clients used Lehman as a prime broker. Under certain contracts, Lehman could reuse or re-mortgage client assets to finance itself. When the firm collapsed in 2008, those assets became trapped in the bankruptcy proceedings, and a lengthy process was required to determine what actually belonged to each client.

This case wasn’t exactly that of the small investor who buys an ETF through an app and loses their shares overnight. But it did highlight a fundamental point: when there is complex custody, rehypothecation, and the insolvency of a major intermediary, the client can very quickly go from “I have my securities” to “I have a claim within a technical, slow, and uncertain process.”

Something similar was seen with MF Global in 2011. It wasn’t a pure case of custodied shares, but rather of client funds at a futures and commodities brokerage. Yet the lesson is the same: even when money or assets are supposed to be segregated, an operational crisis, mismanagement, or misuse can create a gap between what the client believes they have and what they can actually recover.

The Madoff case highlights another aspect of the problem. In that instance, it wasn’t a failure of a central depository; rather, it was a case of outright fraud. But it served as a reminder of an uncomfortable truth: what appears on a statement does not always correspond to actual assets that have been purchased and placed in custody. The screen may display a portfolio; the relevant question is whether those assets exist, where they are, who is listed as the owner, and under what legal framework you can claim them.

More recent is the case of Russian assets frozen following the invasion of Ukraine. European sanctions blocked the Russian NSD infrastructure, and as a result, many assets held through Euroclear and Clearstream were frozen. This is not to say that those shares “ceased to belong” to their owners in a civil law sense. The point is different: you can have a legal right to an asset and yet still be unable to dispose of it because the custody and settlement infrastructure is blocked by a political decision.

Even the GameStop and Robinhood episode in 2021—though it was not a case of loss of ownership or the disappearance of shares—highlighted an important point: the brokerage platform is not in control. Beneath it lie clearinghouses, margin requirements, collateral, custodians, and internal rules that can restrict operations from one day to the next. The investor sees a simple app; behind it lies a financial architecture that can impose restrictions when the system comes under strain.

And then there are the contractual warnings issued by some institutions themselves. SEB, for example, acknowledges in its legal documentation regarding CSDR that, if a securities shortfall occurs, the affected client may not be able to assert a right of separation and would likely be treated as an unsecured creditor, with no priority over the bankruptcy estate.

In Conclusion

The conclusion here is not that you should stop using brokers, nor that you have to register all your shares via DRS, and certainly not that the stock market ceases to be a valid tool for building wealth.

The conclusion is different: you must understand what you actually own, where it is, in whose name it is held, and on which intermediaries you depend to be able to access it.

Generally speaking, it may not make sense to overcomplicate things. But if your financial assets begin to reach a significant level —and, above all, if you hold substantial long-term positions or if a substantial part of your future financial freedom depends on those assets— then custody ceases to be a technical detail and could become a strategic issue worth considering.

So, before deciding whether you should use DRS, switch brokers, diversify custodians, hold part of your assets in physical form, use different jurisdictions, or rethink your international structure, you should analyze your entire situation. There is no one-size-fits-all solution. Solutions vary in effectiveness depending on your residence, your assets, your goals, the countries where you have exposure, and your risk tolerance.

At Denationalize.me, we help with exactly that: designing an international strategy so that your assets, your business, your tax residency, and your investments do not depend on a single point of failure.

If you’d like to review your situation and see what options you have to better structure your assets, reduce risks, and gain more control, you can contact us and book a consultation with us.