Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

In Street Name

What it is:

Securities are held in street name when the name of the broker, not the individual owner, is listed on the certificate. Almost all securities held in brokerage accounts are held in street name.

How it works (Example):

Even if a security is held in street name, all the rights and benefits of owning the security are transferred to the owner.

For example, you decide to buy 100 shares of Stock XYZ. You call your broker at EasyTrade and give her your order. She finds 100 shares of XYZ, but instead of transfering the stock certificate into your name, EasyTrade is listed as the owner. EasyTrade then assigns all the ownership rights to you as the "beneficial owner." They update you on the value of your "beneficial ownership" via your monthly  or quarterly account statements.

In many cases, instead of going out into the market to find your 100 shares of XYZ, your broker will just allocate 100 shares to you from EasyTrade's pre-existing inventory. This way, the trade happens quickly and with minimal paperwork.

Why it Matters:

Holding your securities in street name allows your broker to make trades more quickly and more easily than if each certificate had to be put in the name of the owner. All transactions and chains of ownership can be done electronically.

Imagine how much longer trades would take if a seller's physical stock certificates had to be sent back to the issuer (the company), put in the name of the new buyer, and then physically delivered to the new buyer. In fact, if you want to have physical possession of a stock certificate, your broker will often charge you a fee for the added expense.

Furthermore, having your securities in street name puts the burden on your broker to keep the stock certificates safe so you don't have to worry about them being lost or stolen.