Financial Industry Regulatory Authority (FINRA) Practice Exam

In the event of a stock split, which party is responsible for maintaining records of shareholders eligible for additional shares?

1. DTC

2. Issuer

3. Custodian

4. Transfer agent

The correct answer is: Transfer agent

In the event of a stock split, the responsibility for maintaining records of shareholders who are eligible to receive additional shares falls primarily to the transfer agent. The transfer agent acts as an intermediary between the company (the issuer) and its shareholders, ensuring that all shareholder records are accurate and up-to-date. They manage the processes associated with issuing new shares, including stock splits, where existing shares are divided into multiple shares, effectively increasing the number of shares outstanding while reducing the share price. The transfer agent keeps a detailed ledger of the company’s shareholders, which is essential during a stock split to ensure that shareholders receive the correct number of additional shares according to their existing holdings. This accuracy is crucial for maintaining shareholder rights and responsibilities. While the issuer is ultimately responsible for the overall management of the company and its equity, they rely on the transfer agent to handle the specifics of record-keeping and share distribution. Other entities, like the Depository Trust Company (DTC) and custodians, play roles in clearing and settling trades or holding securities, but they do not maintain the detailed records of individual shareholders in the same manner as the transfer agent.