Street Name

A broker-dealer might put securities into street name in book entry form unless the investor requests otherwise. An investor might not need to take an affirmative action to hold securities in street name. To obtain more information about a broker's practices, an investor can check the account agreement with the broker-dealer, check the account settings with the broker-dealer, and speak to the broker-dealer.

Registered owners, also known as record holders, have a direct relationship with the issuer because their ownership of shares is listed on records maintained by the issuer or its transfer agent. State corporation law generally vests the right to vote and the other rights of share ownership in registered owners. Because registered owners have the right to vote, they also have the authority to appoint a proxy to act on their behalf at shareholder meetings.

Cede & Co. and the Depository Trust Company

In many cases where securities are held by the investor in street name, the actual registered owner on the issuer's books is Cede & Co., an entity that is affiliated with The Depository Trust Company, known as DTC, and that is often referred to as DTC's nominee. DTC is a clearing agency registered with the Securities and Exchange Commission, known as the SEC, and is the main central securities depository in the United States.

Historically, most securities registered in the name of Cede & Co. were represented by jumbo certificates held in a vault at DTC. This continues to be the case with respect to some issuers. With respect to many issuers, the securities registered in the name of Cede & Co. are held in book-entry form through direct registration at the transfer agent.

In most cases, the chain of ownership for beneficially owned securities of U.S. companies begins with DTC, a registered clearing agency acting as a securities depository. Most large U.S. broker-dealers and banks are DTC participants, meaning that they deposit securities with, and hold those securities through, DTC. DTC's nominee, Cede & Co., appears in an issuer's stock records as the sole registered owner of securities deposited at DTC.

DTC holds the deposited securities in fungible bulk, meaning that there are no specifically identifiable shares directly owned by DTC participants. Each participant owns a pro rata interest in the aggregate number of shares of a particular issuer held at DTC. Correspondingly, each customer of a DTC participant, such as an individual investor, owns a pro rata interest in the shares in which the DTC participant has an interest.

What the Broker-Dealer Provides

When an investor holds securities in street name through a broker-dealer, the broker-dealer sends the investor, at least quarterly, an account statement that lists all the securities held by the broker-dealer. The broker-dealer also credits the investor's account with any associated dividend and interest payments and provides consolidated tax information.

The broker-dealer also ensures the investor is sent issuer communications, such as annual reports, except in certain circumstances where the issuer might send the annual report directly to the investor, and proxy materials related to stockholder meetings. Since the investor's name is not on the books of the issuer, the issuer typically does not mail important corporate communications directly to the investor, but instead requests the broker-dealer to forward the information.

Considerations for Holding Securities in Street Name

The broker-dealer is responsible for maintaining the records of the investor's ownership interest in the security, and the investor does not have to worry about securities certificates being lost or stolen.

Because the securities are already held with the broker-dealer, the investor might have access to additional benefits and features. For instance, an investor might be able to place limit orders directing the broker-dealer to sell the security at a specific price. An investor might also be allowed to set up a margin account, allowing the investor to borrow funds that are collateralized by the securities held in street name with the broker-dealer.

An investor should always make sure to understand the broker-dealer's fees, including securities transfer fees and physical certificate request fees, before opening a brokerage account or making a specific transaction involving the broker-dealer.

An investor might experience a slight delay in receiving dividend disbursements and interest payments from the broker-dealer. Some broker-dealers only pass along these payments to investors on a weekly, bi-weekly, or monthly basis.

Selling Securities Held in Street Name

The process of selling securities, and the amount of time needed to execute a trade, varies based on the way the securities are held. To sell a security held in street name registration, an investor can instruct the broker-dealer to sell the security, instruct the broker-dealer to electronically move the security to the issuer or its transfer agent to sell where the issuer or its transfer agent has a program in place to accommodate sale requests, or instruct the broker-dealer to electronically move the security to another broker-dealer to sell.

An investor can place a limit order, a market order, or a stop order through a broker-dealer to execute a transaction for securities held in direct registration, street name, or certificate form, but the timing of order execution varies.

Voting and Record Date Procedures at DTC

Once an issuer establishes a date for the shareholder meeting and a record date for shareholders entitled to vote on matters presented at the meeting, it sends a formal announcement of these dates to DTC, which DTC forwards to all of its participants. The issuer then requests from DTC a securities position listing as of the record date, which identifies the participants having a position in the issuer's securities and the number of securities held by each participant. DTC must promptly respond by providing the issuer with a list of the number of shares in each DTC participant's account as of the record date.

The record date securities position listing establishes the number of shares that a participant is entitled to vote through its DTC proxy. For each shareholder meeting, DTC executes an omnibus proxy transferring its right to vote the shares held on deposit to its participants. In this manner, broker-dealer and bank participants in DTC obtain the right to vote directly the shares that they hold through DTC.

Proxy Materials and Voting: Rule 2251

Rule 2251 of the Financial Industry Regulatory Authority, known as FINRA, is headed Processing and Forwarding of Proxy and Other Issuer-Related Materials. Under Rule 2251(a), a member processes and forwards promptly all information as required by the rule and applicable SEC rules regarding a security to the beneficial owner, or the beneficial owner's designated investment adviser, if the member carries the account in which the security is held for the beneficial owner and the security is registered in a name other than the name of the beneficial owner.

Under Rule 2251(b), no member gives a proxy to vote stock that is registered in its name, except as required or permitted under the provisions of paragraphs (c) or (d) of the rule, unless the member is the beneficial owner of the stock.

Rule 2251(c)(1) applies whenever an issuer or stockholder of the issuer soliciting proxies, subject to paragraph (e) of the rule and applicable SEC rules, timely furnishes to a member sufficient copies of all soliciting material that the person is sending to registered holders, and satisfactory assurance that the person will reimburse the member for all out-of-pocket expenses, including reasonable clerical expenses incurred by the member in connection with the solicitation. In that case the member processes and transmits promptly to each beneficial owner of stock of the issuer, or the beneficial owner's designated investment adviser, that is in its possession or control and registered in a name other than the name of the beneficial owner, all the material furnished.

The material includes a signed proxy indicating the number of shares held for the beneficial owner and bearing a symbol identifying the proxy with proxy records maintained by the member, and a letter informing the beneficial owner, or the beneficial owner's designated investment adviser, of the time limit and necessity for completing the proxy form and processing and forwarding it to the person soliciting proxies prior to the expiration of the time limit in order for the shares to be represented at the meeting.

Notwithstanding paragraph (c)(1), under Rule 2251(c)(2) a member may give a proxy to vote any stock pursuant to the rules of any national securities exchange of which it is a member, provided that the records of the member clearly indicate the procedure it is following. Under Rule 2251(d)(1), a member may give a proxy to vote any stock registered in its name if the member holds the stock as executor, administrator, guardian, trustee, or in a similar representative or fiduciary capacity with authority to vote. Under Rule 2251(d)(2), a member that has in its possession or within its control stock registered in the name of another member and that desires to process and transmit signed proxies pursuant to paragraph (c) obtains the requisite number of signed proxies from the holder of record.

Forwarding Obligations: Rule 14b-1

Rule 14b-1 under the Securities Exchange Act of 1934 is headed Obligation of registered brokers and dealers in connection with the prompt forwarding of certain communications to beneficial owners. In the rule, a registrant is the issuer of a class of securities registered pursuant to section 12 of the Securities Exchange Act of 1934, or an investment company registered under the Investment Company Act of 1940.

Under Rule 14b-1(b)(1), the broker or dealer responds, by first class mail or other equally prompt means, directly to the registrant no later than seven business days after the date it receives an inquiry made in accordance with Rule 14a-13(a) or Rule 14c-7(a). The response indicates the approximate number of customers of the broker or dealer who are beneficial owners of the registrant's securities that are held of record by the broker, dealer, or its nominee, and the number of customers who are beneficial owners of the registrant's securities who have objected to disclosure of their names, addresses, and securities positions if the registrant has indicated that it will distribute the annual report to security holders to beneficial owners of its securities whose names, addresses and securities positions are disclosed pursuant to paragraph (b)(3). The response also indicates the identity of the designated agent of the broker or dealer, if any, acting on its behalf in fulfilling its obligations under paragraph (b)(3).

Under Rule 14b-1(b)(2), upon receipt of the proxy, other proxy soliciting material, information statement, and annual report to security holders from the registrant or other soliciting person, the broker or dealer forwards the materials to its customers who are beneficial owners of the registrant's securities no later than five business days after receipt.

Under Rule 14b-1(b)(3), the broker or dealer, through its agent or directly, provides the registrant, upon the registrant's request, with the names, addresses, and securities positions, compiled as of a date specified in the registrant's request which is no earlier than five business days after the date the registrant's request is received, of its customers who are beneficial owners of the registrant's securities and who have not objected to disclosure of such information. The broker or dealer transmits that data to the registrant no later than five business days after the record date or other date specified by the registrant.

A customer who has not objected to disclosure of the customer's name, address, and securities position is a non-objecting beneficial owner, known as a NOBO. A customer who has objected is an objecting beneficial owner, known as an OBO.

Under Rule 14b-1(c)(2), a broker or dealer need not satisfy its obligations under paragraphs (b)(2), (b)(3) and (d) if the registrant or other soliciting person, as applicable, does not provide assurance of reimbursement of the broker's or dealer's reasonable expenses, both direct and indirect, incurred in connection with performing those obligations.

Custody and Protection of Customer Securities

Rule 15c3-3 under the Securities Exchange Act of 1934 covers customer protection, reserves and custody of securities. Under Rule 15c3-3(b)(1), a broker or dealer promptly obtains and thereafter maintains the physical possession or control of all fully-paid securities and excess margin securities carried by a broker or dealer for the account of customers.

Nearly all broker-dealers are members of the Securities Investor Protection Corporation, known as SIPC. SIPC protects customers of a SIPC member broker-dealer against the loss of securities and cash deposited with that SIPC member for the purchase of securities. If that SIPC-member broker-dealer fails, SIPC advances funds, up to a per-customer limit that includes a separate limit for cash claims, to cover a shortfall in customer property. Many broker-dealers also carry insurance in excess of SIPC's coverage. SIPC does not protect against losses caused by a decline in the market value of securities.

Exam Relevance

The Securities Industry Essentials examination content outline lists, under Topic 3.1.4, Corporate Actions, the bullets Delivery of notices and corporate action deadlines and Proxies and proxy voting. Topic 3.1 is headed Trading, Settlement and Corporate Actions, within Section 3, Understanding Trading, Customer Accounts and Prohibited Activities. Candidates should check the current outline before the examination.

Common Misunderstandings

Securities held in street name are registered in the investor's name. With street name registration, the securities are registered on the issuer's books in the name of an intermediary, and the broker-dealer maintains records showing the investor as the real or beneficial owner.

The broker-dealer owns the securities held in street name. A beneficial owner does not own the securities directly, but as a customer of the securities intermediary the beneficial owner has an entitlement to the rights associated with ownership of the securities.

The intermediary is always the investor's broker-dealer. The intermediary can be a broker-dealer, a clearing agency, or a nominee affiliated with the broker-dealer or clearing agency, and in many cases the registered owner on the issuer's books is Cede & Co.

The issuer mails proxy materials directly to every shareholder. Since the name of an investor who holds in street name is not on the books of the issuer, the issuer typically does not mail important corporate communications directly to the investor, but requests the broker-dealer to forward the information.

A member can give a proxy to vote any stock registered in its name. Under Rule 2251(b), no member gives a proxy to vote stock that is registered in its name, except as required or permitted under paragraphs (c) or (d) of the rule, unless the member is the beneficial owner of the stock.

Street name and direct registration are the same. A registered owner is listed on records maintained by the issuer or its transfer agent, and an investor holding in direct registration is registered on the books of the issuer as the shareholder.

SIPC protects the market value of securities held in street name. SIPC does not protect against losses caused by a decline in the market value of securities.

Dividends from securities held in street name always arrive the day they are paid. An investor might experience a slight delay in receiving dividend disbursements and interest payments from the broker-dealer.

Key Points to Retain

Street name registration places the securities on the issuer's books in the name of an intermediary, and the broker-dealer maintains records showing the investor as the real or beneficial owner.

A beneficial owner does not own the securities directly but has an entitlement to the rights associated with ownership of the securities.

In many cases, the registered owner on the issuer's books is Cede & Co., which is DTC's nominee.

The broker-dealer credits dividend and interest payments, provides consolidated tax information, and ensures the investor is sent issuer communications and proxy materials.

Under Rule 2251(b), no member gives a proxy to vote stock registered in its name, except as required or permitted under paragraphs (c) or (d) of the rule, unless the member is the beneficial owner.

Rule 14b-1 requires a broker or dealer to forward proxy materials to customers who are beneficial owners and to provide the registrant with the names, addresses, and securities positions of customers who have not objected to disclosure.

Under Rule 15c3-3(b)(1), a broker or dealer promptly obtains and maintains the physical possession or control of all fully-paid securities and excess margin securities carried for customers.

SIPC does not protect against losses caused by a decline in the market value of securities.