Holding Your Securities: Street Name Registration
Investors can choose from the following options to hold their securities:
- Physical Certificate - With this option the investor receives a physical piece of paper representing the investor's ownership of the security. On the issuer's books the security is registered in the investor's name.
- Direct Registration - With this option the security is again registered in the investor's name on the issuer's books, however, there is no need for physical stock certificates. The security is held in the investor's name in a book-entry form by either the company or its transfer agent.
- Street Name Registration - With this option the security is held in the name of a broker or other nominee instead of in the investor's name. Thus, the broker keeps a record in the books that the investor owns the particular security, while the investor himself/herself does not receive a certificate.
This article will examine in further details the third option - street name registration.
Street Name Registration - Pros and Cons
When you register your security in street name you can hold them in your account at your broker. Your brokerage firm will hold the securities in "book-entry" form, keeping records that you are the owner. You will receive an account statement that will list your securities (at least four times a year) and consolidated tax information. Issuer mailings, such as annual reports and proxies, will be also sent to you. Additionally, your account will be credited with your dividend and interest payments.
Yet again, you will not be listed on the issuer's books and will not receive a physical certificate - your broker or another nominee will appear on the issuer's books as the owner.
There are many brokerage firms that will register your securities in street name if you haven't given other instructions preliminarily.
Here are some of the advantages of choosing to register your securities in street name:
- You no longer have to worry about losing your securities certificates since your brokerage firm will be responsible for safeguarding them.
- Transferring the securities is easier since they are held in the broker's custody.
- You can easily place limit orders that instruct your broker to sell your securities at a specific price.
- You may be notified of important developments - for example, when bonds are called.
- Setting up a margin account is easier.
And the disadvantages of choosing street name registration include:
- You will not be mailed directly any important corporate communications.
- You may experience delays of your dividend and interest payments, for example if your brokerage firm passes along such payments on a bi-weekly or monthly basis.
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