Stock ownership

Who owns the stocks?

Classic direct index

When you invest in a Frec Classic direct index, you direct ownership of the individual stocks purchased on your behalf. This is what makes stock-level tax loss harvesting and custom exclusions possible.

Like the majority of brokerage accounts, your shares are held in "street name," meaning Frec's clearing broker is the holder of record with the company, and you are the beneficial owner. In practice, this doesn't change your economic ownership. For more information on "street name" registration, see the SEC's investor publication on holding your securities.

Long short direct index

If you invest in a long short strategy, part of your portfolio works differently.

For long positions, you own the individual stocks, similar to a classic direct index.

For short positions, you don't own the shares. A short position means Frec has borrowed shares from a lending pool and sold them on your behalf, rather than purchasing and holding them. You have an obligation to return an equivalent number of shares to the lender in the future, not ownership of the shares themselves.

Because you don't own the underlying shares, you also don't receive dividends on them. If the company pays a dividend while you're short, you're instead responsible for a "payment in lieu of dividend" to the lender.

Cash proceeds from the short sale are held at our clearing firm, Apex Clearing, and may earn interest that helps offset borrowing costs.

Who owns the ETF once it's held inside the direct index?

You do, just as you'd own any ETF. Frec lets you use eligible ETFs to partially fund or grow a direct index while keeping as many of your original ETF shares as possible, rather than selling them outright.

When an ETF is incorporated this way, you remain the beneficial owner of shares of the fund itself (not the fund's underlying stocks), held in street name at Apex Clearing, just like before. Ownership doesn't change; what changes is that the ETF now counts toward your index strategy instead of being cashed out first.