A stop transfer is a hold placed on a security to prevent it from being transferred. Stop transfers are placed when a security is destroyed, stolen, or lost to ensure that the security is not transferred without the awareness or consent of the owner. Once the situation has been resolved, the stop transfer can be lifted so that the owner will not experience trouble transferring the security in the future.
As soon as an investor recognizes that a security has been lost, stolen, or destroyed, a stop transfer should be filed immediately with a transfer agent. Transfer agents handle all of the paperwork associated with the transfer of securities. Depending on the security in question, the company which issued it may act as the transfer agent or it may use a third party. People can also report thefts, losses, and damage to their brokers and their brokers can handle the stop transfer on their behalf.
It is advisable to keep copies of all securities, ideally in a safe place separate from that where the securities themselves are kept. The copies can be used in the event that a claim needs to be made because they provide documentation of ownership and other data. Securities should be stored in secure areas because they are valuable. A safe deposit box at a bank is one choice, or securities can be stored with a broker for safety and convenience.
Once a stop transfer has been filed, the security cannot be transferred. The issuer will usually reissue the security once it has been established as unrecoverable. However, sometimes people are required to pay a small fee which will protect the issuer in the event that the original is presented by someone who obtained it innocently and does not realize that loss or theft were involved. If a security is later relocated, this should be reported to the transfer agent.
In the case of a stolen security, it is advisable to file a police report. The police report can be used to document that a theft occurred, and may be required to obtain a new copy. The more documentation someone has to back up the claim of legal ownership, the smoother the process of filing a stop transfer and obtaining a replacement will be. Transfer agents also recognize that sometimes people make mistakes and mislay securities documentation; there are no penalties for later finding and reporting a security thought to be lost or stolen.