Definition
Street Name refers to the practice where securities (such as stocks) are held in the name of a brokerage firm or another nominee, rather than in the name of the individual customer who owns them. This method of holding securities allows for efficient and prompt transfer of shares during transactions, as the physical possession of stock certificates is managed by the brokerage or nominee firm.
Examples
- Brokerage Account: John opens a brokerage account with ABC Brokers and purchases 100 shares of XYZ Corporation. Instead of holding the stock certificates himself, the shares are held in street name by ABC Brokers.
- Easier Transactions: Jane holds 50 shares of a tech company in street name through her brokerage. When she decides to sell her shares, the transaction is processed quickly because the shares are already in the broker’s custody.
Frequently Asked Questions
Q1: Why are securities held in street name?
A1: Securities are held in street name to simplify and accelerate the process of trading, transferring, and managing shares. This avoids the delays associated with physical certificates.
Q2: Are there risks associated with holding securities in street name?
A2: While holding securities in street name streamlines transactions, it may also pose risks such as the potential insolvency of the brokerage firm. However, protections like SIPC insurance can mitigate some risks.
Q3: Can I transfer securities from street name to my name?
A3: Yes, you can request your brokerage to transfer securities into your name, but this process can involve additional paperwork and time.
- Beneficial Owner: The person who enjoys the benefits of ownership even though the title is in another name.
- Nominee: An entity or individual registered as holding securities on behalf of the actual owner.
- Securities Transfer: The process by which stock ownership is transferred from one party to another.
Online References
- Investopedia - Street Name Definition
- SEC - Holding Your Securities
Suggested Books for Further Studies
- “The Intelligent Investor” by Benjamin Graham
- “Securities Regulation in a Nutshell” by David L. Ratner
Fundamentals of Street Name: Finance and Securities Basics Quiz
### What is the primary reason for holding securities in street name?
- [ ] For tax evasion purposes.
- [ ] To keep the ownership private.
- [x] To make share transfers easier and faster.
- [ ] To hide the identity of the actual owner.
> **Explanation:** The primary reason for holding securities in street name is to simplify and speed up the process of transferring shares during transactions.
### Who typically holds the securities in street name?
- [ ] The individual investor directly.
- [ ] A government agency.
- [x] A brokerage firm or another nominee.
- [ ] The company's CEO.
> **Explanation:** A brokerage firm or another nominee typically holds the securities in street name on behalf of the individual investor.
### What is a potential disadvantage of holding securities in street name?
- [ ] It increases transaction costs.
- [x] Risk of broker insolvency.
- [ ] Slower transfer of shares.
- [ ] Complicated tax filing.
> **Explanation:** A potential disadvantage of holding securities in street name is the risk of broker insolvency, though there are protective measures like SIPC insurance.
### What is the beneficial owner in the context of street name securities?
- [x] The actual owner who enjoys the benefits of ownership.
- [ ] The brokerage firm.
- [ ] The company's CFO.
- [ ] A third-party mediator.
> **Explanation:** The beneficial owner is the actual owner who enjoys the benefits of ownership, despite the securities being registered in the name of a broker or nominee.
### How can holding securities in street name affect dividend payments?
- [ ] Dividends are paid directly to the beneficial owner.
- [x] Dividends are paid to the nominee or broker first.
- [ ] Dividends are withheld by the broker.
- [ ] Dividends are tax-free.
> **Explanation:** Dividends are typically paid to the nominee or broker first, who then passes them on to the beneficial owner.
### What type of insurance can mitigate the risks associated with holding securities in street name?
- [ ] Travel insurance.
- [ ] Life insurance.
- [x] SIPC insurance.
- [ ] Health insurance.
> **Explanation:** SIPC (Securities Investor Protection Corporation) insurance can mitigate some risks associated with holding securities in street name, such as broker insolvency.
### Can securities held in street name be transferred to another broker?
- [x] Yes, through a process like ACATS.
- [ ] No, they can only be sold.
- [ ] Only with the owner’s physical certificate.
- [ ] No, they must be liquidated first.
> **Explanation:** Securities held in street name can be transferred to another broker through processes like the Automated Customer Account Transfer Service (ACATS).
### What document might be necessary if an investor wants securities transferred from street name to their name?
- [ ] Birth certificate.
- [ ] Passport.
- [x] A stock power form.
- [ ] A bank statement.
> **Explanation:** An investor might need a stock power form, properly signed and possibly medallion guaranteed, to transfer securities from street name to their own name.
### What is one major advantage of holding securities in street name for investors?
- [ ] Higher dividend payouts.
- [x] Quick and efficient transactions.
- [ ] Guaranteed stock price increase.
- [ ] Lower income taxes.
> **Explanation:** One major advantage of holding securities in street name for investors is the quick and efficient processing of transactions without handling physical certificates.
### How does holding securities in street name benefit brokers?
- [x] Simplifies custodial responsibilities.
- [ ] Guarantees higher commissions.
- [ ] Allows direct communication with the company CEO.
- [ ] Eliminates the need for client records.
> **Explanation:** Holding securities in street name benefits brokers by simplifying custodial responsibilities and the transfer process of securities.
Thank you for enhancing your understanding of the fundamental financial concept of “Street Name” and for engaging with our quiz to test your knowledge. Keep learning to achieve financial wisdom!
