Street name securities
Encyclopedia
In the United States
street name securities are securities
of publicly traded companies held electronically in the account of a stock broker
, similar to a bank account. The actual shareholder is referred to as the beneficial owner
. In the United Kingdom
this is known as holding shares in a nominee account. Although terminology between countries differs the basic principles are the same.
The popularity of nominee accounts has increased rapidly since the introduction of Internet
share dealing in the late 1990s and in some cases stocks can only be held electronically, such as exchange-traded fund
s, but holding shares in this way can have disadvantages compared to other methods.
Nominee accounts make paperless
telephone and internet trading possible with faster settlement
periods and lower commissions than certificate deals. They often enable domestic
small investors to gain access to derivatives
such as warrants
and contracts for difference
, to exercise various types of order
, and to buy shares on margin. There is no risk of loss or damage to certificates. It is also possible to obtain an instant valuation of a whole portfolio. On the negative side the shareholder is tied in to one stockbroker, as opposed to a certificate holder who can pick and choose stockbrokers every time they deal. If the shareholder is unhappy with their nominee service, they have to arrange to transfer the shares out which can be a lengthy process for which there is usually a charge. The lack of a share certificate can also make it difficult to use shares as collateral
for a loan
.
Because the shares are held in the name of the stockbroker the name of the beneficial owner does not appear on the share register. This means that dividend
s, shareholder perk
s, company reports, details of corporate action
s and other communications are sent to the stockbroker rather than the beneficial owner. The extent and methods for handling this can vary considerably between brokers. Failure of the stockbroker to pass on shareholder rights and communications to the beneficial owner is one of the major complaints against nominee accounts and is a major reason why activist shareholder
organisations such as The United Kingdom Shareholders' Association are opposed to their use. During 2006 the UK government passed an amendment to the Companies Act 1985
which gave nominee shareholders more rights.
The anonymity of nominee accounts does benefit individuals who wish to hold shares in controversial companies. This has proved useful in situations where investors on share registers have been threatened by animal rights
protestors, such as Huntingdon Life Sciences
and GlaxoSmithKline
. As a consequence, the protestors have been known to intimidate the employees of the stockbrokers instead in order to try to force the companies to stop handling the shares.
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
street name securities are securities
Security (finance)
A security is generally a fungible, negotiable financial instrument representing financial value. Securities are broadly categorized into:* debt securities ,* equity securities, e.g., common stocks; and,...
of publicly traded companies held electronically in the account of a stock broker
Stock broker
A stock broker or stockbroker is a regulated professional broker who buys and sells shares and other securities through market makers or Agency Only Firms on behalf of investors...
, similar to a bank account. The actual shareholder is referred to as the beneficial owner
Beneficial owner
Beneficial owner is a legal term where specific property rights in equity belong to a person even though legal title of the property belongs to another person. Black's Law Dictionary...
. In the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
this is known as holding shares in a nominee account. Although terminology between countries differs the basic principles are the same.
The popularity of nominee accounts has increased rapidly since the introduction of Internet
Internet
The Internet is a global system of interconnected computer networks that use the standard Internet protocol suite to serve billions of users worldwide...
share dealing in the late 1990s and in some cases stocks can only be held electronically, such as exchange-traded fund
Exchange-traded fund
An exchange-traded fund is an investment fund traded on stock exchanges, much like stocks. An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day. Most ETFs track an index, such as the S&P 500 or MSCI EAFE...
s, but holding shares in this way can have disadvantages compared to other methods.
Holding methods
Street name is one of the three ways of holding securities. The other two are:- Stock certificateStock certificateIn corporate law, a stock certificate is a legal document that certifies ownership of a specific number of stock shares in a corporation...
- As a "direct" registration (Personal CRESTCRESTCREST is the Central Securities Depository for the U.K., Republic of Ireland, Isle of Man and Jersey equities and UK gilts, named after its securities settlement system, CREST. The project was launched in 1993, following the Taurus fiasco, and the company was founded in 1996. CREST allows...
account in the UK)
Nominee accounts make paperless
Paperless office
A paperless office is a work environment in which the use of paper is eliminated or greatly reduced. This is done by converting documents and other papers into digital form. Proponents claim that "going paperless" can save money, boost productivity, save space, make documentation and information...
telephone and internet trading possible with faster settlement
Settlement (finance)
Settlement of securities is a business process whereby securities or interests in securities are delivered, usually against payment of money, to fulfill contractual obligations, such as those arising under securities trades....
periods and lower commissions than certificate deals. They often enable domestic
Home
A home is a place of residence or refuge. When it refers to a building, it is usually a place in which an individual or a family can rest and store personal property. Most modern-day households contain sanitary facilities and a means of preparing food. Animals have their own homes as well, either...
small investors to gain access to derivatives
Derivative (finance)
A derivative instrument is a contract between two parties that specifies conditions—in particular, dates and the resulting values of the underlying variables—under which payments, or payoffs, are to be made between the parties.Under U.S...
such as warrants
Warrant (finance)
In finance, a warrant is a security that entitles the holder to buy the underlying stock of the issuing company at a fixed exercise price until the expiry date....
and contracts for difference
Contract for difference
In finance, a contract for difference is a contract between two parties, typically described as "buyer" and "seller", stipulating that the buyer will pay to the seller the difference between the current value of an asset and its value at contract time...
, to exercise various types of order
Order (exchange)
An order in a market such as a stock market, bond market, commodity market or financial derivative market is an instruction from customers to brokers to buy or sell on the exchange.These instructions can be simple or complicated...
, and to buy shares on margin. There is no risk of loss or damage to certificates. It is also possible to obtain an instant valuation of a whole portfolio. On the negative side the shareholder is tied in to one stockbroker, as opposed to a certificate holder who can pick and choose stockbrokers every time they deal. If the shareholder is unhappy with their nominee service, they have to arrange to transfer the shares out which can be a lengthy process for which there is usually a charge. The lack of a share certificate can also make it difficult to use shares as collateral
Collateral (finance)
In lending agreements, collateral is a borrower's pledge of specific property to a lender, to secure repayment of a loan.The collateral serves as protection for a lender against a borrower's default - that is, any borrower failing to pay the principal and interest under the terms of a loan obligation...
for a loan
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
.
Because the shares are held in the name of the stockbroker the name of the beneficial owner does not appear on the share register. This means that dividend
Dividend
Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...
s, shareholder perk
Employee benefit
Employee benefits and benefits in kind are various non-wage compensations provided to employees in addition to their normal wages or salaries...
s, company reports, details of corporate action
Corporate action
A corporate action is an event initiated by a public company that affects the securities issued by the company. Some corporate actions such as a dividend or coupon payment may have a direct financial impact on the shareholders or bondholders; another example is a call of a debt security...
s and other communications are sent to the stockbroker rather than the beneficial owner. The extent and methods for handling this can vary considerably between brokers. Failure of the stockbroker to pass on shareholder rights and communications to the beneficial owner is one of the major complaints against nominee accounts and is a major reason why activist shareholder
Activist shareholder
An activist shareholder uses an equity stake in a corporation to put public pressure on its management. The goals of activist shareholders range from financial to non-financial...
organisations such as The United Kingdom Shareholders' Association are opposed to their use. During 2006 the UK government passed an amendment to the Companies Act 1985
Companies Act 1985
The Companies Act 1985 is an Act of the Parliament of the United Kingdom of Great Britain and Northern Ireland, enacted in 1985, which enabled companies to be formed by registration, and set out the responsibilities of companies, their directors and secretaries.The Act was a consolidation of...
which gave nominee shareholders more rights.
The anonymity of nominee accounts does benefit individuals who wish to hold shares in controversial companies. This has proved useful in situations where investors on share registers have been threatened by animal rights
Animal rights
Animal rights, also known as animal liberation, is the idea that the most basic interests of non-human animals should be afforded the same consideration as the similar interests of human beings...
protestors, such as Huntingdon Life Sciences
Huntingdon Life Sciences
Huntingdon Life Sciences is a contract animal-testing company founded in 1952 in England, with facilities in Huntingdon, Cambridgeshire; Eye, Suffolk; New Jersey in the U.S., and Japan...
and GlaxoSmithKline
GlaxoSmithKline
GlaxoSmithKline plc is a global pharmaceutical, biologics, vaccines and consumer healthcare company headquartered in London, United Kingdom...
. As a consequence, the protestors have been known to intimidate the employees of the stockbrokers instead in order to try to force the companies to stop handling the shares.